Colombia - Colombian agriculture : selected issues and some directions for strategy

Report No. 4275-CO Colombian Agriculture: Selected Issues and Some Directions for Strategy January 31, 1983 Latin American and the Caribbean Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Colombian Peso (Col.$) US$1 = Col.$70.11 (as of December 31, 1982) WEIGHTS AND MEASURES Metric System GOVERNMENT OF COLOMBIA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY GLOSSARY OF ABBREVIATIONS BOR - Banco de la Republica (Central Bank) CAJA - Caja de Credito Agrario, Industrial y Minero (Agricultural, Industrial and Mining Credit Bank) CAT - Certificado de Abono Tributario (Tax Credit Certificate) CENICAFE - Centro Nacional de Investigaciones de Cafe (National Coffee Research Center) CIDA - Canadian International Development Agency COLPUERTOS - Puertos de Colombia (Colombian Port Authority) DANE - Departamento Administrativo Nacional de Estadistica (National Department of Statistics) DNP - Departamento Nacional de Planeacion (National Planning Department) DRI (IRDP) - Programa de Desarrollo Rural Integrado (Integrated Rural Development Program) FFAP - Fondo Financiero Agropecuario (Agricultural Financial Fund) FEDERACAFE - Federacion Nacional de Cafeteros de Colombia (National Federation of Colombian Coffee Growers) FEDEGAN Federacion Colombiana de Ganaderos (Colombian Cattle Owners' Federation) FEDEARROZ - Federacion Nacional de Arroceros (National Rice Producers' Federation) FEDERALGODON - Federacion Nacional de Algodoneros (National Cotton Producers' Federation) FEDESARROLLO - Fundacion para la Educacion Superior y el Desarrollo (Foundation for Higher Education and Development) ICA - Instituto Colombiano Agropecuario (Colombian Agricultural Institute) IDB - Inter-American Development Bank This document has a restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- IDEMA - Instituto de Mercadeo Agropecuario (Agricultural Marketing Institute) INCORA - Instituto Colombiano de la Reforma Agraria (Colombian Institute for Agrarian Reform) INDERENA - Instituto Nacional de los Recursos Naturales Renovables y del Ambiente (National Institute for Renewable Natural Resources and the Environment) IFS - International Financial Statistics OPSA - Oficina de Planeamiento del Sector Agropecuario (Agricultural Sector Planning Office) PIN - Plan de Integracion Nacional (National Integration Plan) PAN - Plan Nacional de Alimentacion y Nutricion (National Food and Nutrition Plan) PLANIA - Plan Nacional de Investigacion Agropecuaria del ICA (National Agricultural Research Plan for ICA) PLANIF - Plan Nacional de Investigacion Forestal (National Plan for Forestry Research) PRODESARROLLO - Programa de Diversificacion y Desarrollo de Zonas Cafeteras (Program of Development and Diversification of Coffee Areas) PROEXPO - Fondo de Promocion de Exportaciones (Export Promotion Fund) REER - Real Effective Exchange Rate SAC - Sociedad de Agricultores de Colombia (Colombian Farmers' Association) SENA - Servicio Nacional de Aprendizaje (National Apprenticeship Service)  This report has grown out of recent work carried out jointly by the LAC Agricultural Projects and the Colombia Country Programs Divisions. The report, prepared by Vinod Thomas (coordinator), Marc Blanc and Jose B. Sokol, is based on the findings of an agricultural mission and an economic mission in June - July 1982.   COLOMBIAN AGRICULTURE: SELECTED ISSUES AND SOME DIRECTIONS FOR STRATEGY TABLE OF CONTENTS Page No. COUNTRY DATA SUMMARY AND CONCLUSIONS .......................................... i-vi I. OVERVIEW OF SECTORAL PERFORMANCE AND POLICY ...................... I A. Composition of Production and Trends ..1............ B. Elements of Growth and Problems .. 4 The Role of Coffee .. 4 Area and Yields .. 5 Price Incentives and Trade Policy . . 6 C. A Needed Focus .. 6 II. INPUT PROVISION, INVESTMENT AND TECHNOLOGY ....................... 8 A. Water Development and Management ............................. 8 Recommendations ............................................ 9 B. Conservation of Renewable Natural Resources .................. 9 Recommendations ............................................ 10 C. Fertilizer ................................................... 11 D. Research and Extension ....................................... 11 Recommendations ............................................ 12 E. Marketing .................................................... 13 Recommendations ............................................ 14 F. Agricultural Credit .......................................... 14 Interest Rates ............................................. 15 Small- vs Large-Scale Farmers .............................. 16 Recommendations ............................................ 17 G. Rural Labor and Income ....................................... 18 III. COMPETITIVENESS AND INCENTIVES ................................... 19 A. General Considerations ....................................... 19 B. Output Prices ................................................ 21 Price Supports ............................................. 21 Price Stabilization: Year-to-year and Seasonal ............. 22 Recommendations ............................................ 24 C. Input Pricing: Fertilizer ................................... 24 Recommendations ............................................ 26 D. Trade Policy ................................................. 27 E. The Special Case of Coffee ................................... 30 Prices, Production and Stocks .............................. 30 Coffee Diversification ..................................... 32 Recommendations ............................................ 33  TABLE OF CONTENTS (Continued) Page No. IV. INSTITUTIONAL CONSTRAINTS ............................... 34 V. DEVELOPMENT OBJECTIVES, POLICY ORIENTATION AND INVESTMENT STRATEGY .......... 36 A. Broad Goals and Key Sectoral Objectives ...................... 36 Export Promotion . . 36 Food Production ........................................... 37 Raising Rural Employment and Income ........................ 37 B. Development Strategy and Policy Implications ........... ...... 38 Overall Investment and Allocation .......................... 38 Trade Policy . .. .. 38 Price Support and Input Subsidy .. 39 C. A Summary List of Areas for Investment ...................... 39 D. Sector Work ................. .... .................. ..... 40 Trade Policies and the Competitiveness of Exports ......... 40 Price Support, Marketing Funds and IDEMA Policies ......... 40 Fertilizer Price and Use ............................... ..... 40 Agricultural Credit and Interest Rates .................. .. 41 Incentives for Coffee Diversification ............... . ..... 41 STATISTICAL APPENDIX Table I Gross Domestic Product at Factor Cost by Sector at Constant Prices, 1965, 1970-81 ...... ............ 43 Table II Agriculture Gross Value Added at Constant 1970 Prices, 1950-81 ................................. 44 Table III : Composition of Production and Trade of Crops ....... 45 Table IV : Commodity Exports, 1970-81 ......................... 45 Table V Value of Principal Product Groups, 1970-80 ......... 47 Table VI : Imports by Principal Product Groups, 1970-81 ....... 48 Table VII : Yield Comparisons for Selected Crops, 1981 ......... 49 Table VIII: Agricultural Terms of Trade (TOT), 1965-81 ......... 50 Table IX Total Agricultural Outstanding Loans at Year End ... 51 Table X Supply and Distribution of Export Grade Green Coffee, 1958-59 to 1981-82 ...................... 52 Table XI : New York and Domestic Coffee Prices, Real and Nominal, 1970-81 ....... ..... . 53 Table XII Balance of Payments, Export Projections, 1980-90... 54 MAPS IBRD-10190 Colombia: Natural Regions IBRD-10117 Colombia: Agricultural Land Use IBRD-10103 Colombia: Principal Livestock Production Areas  Page I of 2 ClZMY DM - CNIMEIA AKFA POP2IATIa EE2NrIY 1,138,900 sq.km. (total) 26.9 million (mid-1982) 23.6 per sq.km. 232,000 sq.km. (arable) Rate of growth: 2.CP (from 1975 to 1982) 116.2 per sq.km. of arabae land P1AIIAON GAACIERSICS1/ HEATHI/ (Cre birth rate (per i,O0X) 30 Pbpulaticn per physician 1,967 Cnxle death rate (per 1,OD0) 8 Pbpulation per hospital bed 619 Infant nortality (per 1,000 live births)2/ 56 INCQfE DL!ISRIBuI'JoN (1978) DISIREBUll(N CF LAND (aNE]sP (1971) % of national inacm, highest 10% 40 % awrnd by top 10% of awers 80.0 la,est 20% 5 % owned lby smalest 10% of a"rs 0.2 AUZSS TO SAFE WAnR2/ AocESS TO ElMlRICITY (1973) % of population - urban 73 % of population - urban 87.3 - rural 46 - rural 13.2 - total 64 NIU1ITION EUICATlC1 Caloric intake as % of requirements 98 Adult literacy rate (1973) 80.8 per capita protein intake (grams per day) 49 Primary scbool enrolnmEt ratio2/ 128.0 (P pER CAPiTA IN 19813/ US$1,330 COSS NA1IONAL MM=ttT IN 19814/ ANNUAL RATE OF G(aH (%, Constant Prices) USS KLn. % 1960-65 1965-70 1970-75 1975-80 1981 GNIP at ?urket Prices 36,462 100.0 4.5 5.5 6.6 6.0 2.5 (koss Doiaestic Investmnt 10,210 28.0 1.8 8.1 1.3 10.3 9.3 (koss National Saving 8,480 23.3 2.1 10.8 6.5 10.5 - 8.0 Qirrent Accoumt Balanee - 1,730 - 4.7 Exports of Goods, NFS 4,444 12.1 2.1 4.1 4.4 7.3 - 7.6 1ports of Goods, NFS 5,929 16.2 1.9 10.2 0.8 11.9 3.8 AJlYU, IABS FCCEAN RTCflVITY IN 1980 Value Added Iabor Force2/ V.A. per Worker US$ Mln. % KMn. % US$ % Agriculture 8,181 27.6 2.3237 25.8 3,521 106.9 Industry 9,108 30.7 1.9094 21.2 4,770 144.8 Other 12,381 41.7 4.7737 53.0 2,594 78.7 Total Wemighted Aaerage 29,670 100.0 9.0068 100.0 3,294 100.0 WVER*12ENT FINANE Public Sector Central Government (Col$ Mln) % of CDP _ (Col$ in) % of GDP 1981 1981 1976-1980 1981 1981 1976-1980 Qarrent Revenue 561,634 28.0 24.5 261,499 13.0 14.3 0arrent Expenditure 398,919 19.9 17.0 98,474 4.9 7.8 Qirrent Account Srplus 162,715 8.1 7.5 163,025 8.1 6.5 Capital Expenditure 148,933 7.4 7.1 90,914 4.5 3.9 External Borrowing (net) 35,091 1.7 1.3 1/ Between 1978 and 1982. 2/ Between 1978 and 1980. 3/ The per capita QGP estimate is calculated by the conversion technique in the World Bank Atlas. Other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 4/ Preliminary. NBt applicable. Not available.  Page 2 of 2 OI1MY DM - COL4B )M-Y, Q)1T AI) MM 1976 1977 1978 1979 1980 19811/ (BMnicns of (bl$ outstaudng end Nrlod) Itxwy arA Qi Ibmy 105.1 140.7 181.7 224.6 325.3 440.8 cdit to the Rh1ic Sector 15.5 19.2 16.1 - 5.66 -15.41 - 6.75 HN*aedtt tDm PtiVte Sector 109.2 142.3 149.3 181.6 269.3 361.1 (Percetages or index rmbers) )y and Qwi Mey Z Z of GP 19.7 19.6 19.8 18.8 20.5 22.0 CAOMir Price nex ( 1978 - 100) 69.5 85.7 1C0.0 124.9 158.9 203.6 Awal prc=tqa d-n in: Gosusr Price IEX 19.9 34.7 16.7 24.9 27.2 28.1 ibmy ad Qi fIey 33.9 33.9 29.1 23.6 44.8 35.5 cidit tD the R1ibic Sector - 2.3 23.9 -16.1 -35.2 272.3 -56.2 Uk czedit to the Privwe Sector 23.3 30.3 4.9 21.6 48.3 34.1 MIMD (1 FAWI1S o (MliaM IE$) MEXANDISE BXIC1RS (Average 1978-81) 1979 1980 19811/ US$ EUn % 1aiwo of Gods, NuS 4,658 5,348 4,444 CGffee 1,929 51.0 Iqorts of Goods, Ns 3,939 5,433 5,929 Major Nn-Coffee Agricultui 517 13.7 IaouzD Gap (1lficit - -) 719 - 85 -1,485 Mjor Mmufactured Goods 610 16.1 Petroleum Derivatives 217 5.7 Factor Service 1mxe (net) - 255 - 260 - 334 All Other Goods 510 13.5 lbci (267) (483) (626) _ P"ments (522) (743) (960) Total 3,783 108.0 Not Tuides 98 97 89 11F1o a Owrent Acut 562 - 248 -1,730 3WAL EEBT, Ei(M 31, 19811/ lrect FJbin Inwitnnt 104 234 209 Not EX HBrrw 609 835 1,047 Us$ Mn. Illhirit (1,102) (1,098) (1,534) Atizatim (-493) (-263) (- 487) Public Debt, including 5,076 ital n.e.i. (net) - 38 380 587 guaranteed hXrese in leewes (-)3/ -1,237 -1,201 -113 Nn-guaranteed Private Debt .. Total Outstarding aid Dishbrsed 5,076 (kos 1arw (.d yealr)4! 4,113 5,420 5,633 kbt merws (ead year)4F 4,106 5,416 5,630 lET SERVICE RATIO FCR 1981 % Amrtization5/ 6.2 Interest 8.4 Total 14.6 RAN OF EXAi INMD/MDA IElDING, (Dtcember 31, 1981) (Million US$) Iker 31, 1981 iBRD __ US$1.S0 - Co1659.07 Go1$1.0W - USO0.0169 Oatstanding and Dishnrsed 1,165 21 Uldisbursed 1,073 - taDcr 31, 1982 Oiatstading -Icluding Uidishrsed 2,238 21 k61.0= - Cal$70.11 0DSl.0D - UIS0.0143 1/ FmThimry daet. 2/( Ofe rwrwmy. 31 E the aB6dng syteo 4 (t t atral Uk. _/ katio of IDbt Serdie to xpworts of ds and all Services. ..Nat avwble.  COLOMBIAN AGRICULTURE: SELECTED ISSUES AND SOME DIRECTIONS FOR STRATEGY SUMMARY AND CONCLUSIONS Development Trends i. Colombian agriculture has grown, albeit erratically, at an annual average rate of roughly 4% during the past two decades, contributing about one-fifth of the expansion of the economy. Although the sectoral share in GDP has been falling during this period, it is still about 25% at present, which is almost twice the average for middle income countries. This high proportion provides some measure of the continuing large share of high- value crops such as coffee in the value added, and of the strong perform- ance of the sector relative to others in the Colombian economy and compa;ed to agriculture elsewhere. ii. Well over one-half of the growth in agricultural output during the 1970s was accounted for by additional agricultural exports, which in recent years have varied from 68% to 75% of all legal exports. The center- piece of this phenomenon has clearly been coffee, although the combined value of other export items such as cotton, sugar, banana and flowers has also risen significantly, doubling in real terms during the past decade. At the same time, since the export expansion of non-coffee products has taken place over a rather small base, most of the additional domestic pro- duction has contributed to higher domestic consumption. Combined with more imports, the availability for consumption of non-coffee commodities is estimated to have risen by nearly 5% annually during the 1970s, implying increased per capita consumption of roughly 2.7%. Current Situation and Implications iii. In comparison to this long-term experience, the sectoral perform- ance has deteriorated markedly in more recent years, with an annual growth rate of 2%-2.5% estimated for 1979-82. A part of this slow-down can be attributed to adverse weather conditions and to the stagnation in the general level of economic activity. In addition, however, there is a grow- ing perception that new constraints have emerged rendering a revitalization of the sector more difficult now than would have been in the past. For example, the external demand facing Colombia for its coffee is expected to remain depressed in the medium term, while the demand for the country's other major agricultural exports is projected to grow only modestly at the existing real exchange rate. On the supply side, the utilization of addi- tional acreage for cultivation is projected to involve greater investment than in the past, implying the need increasingly to pursue the option of achieving yield improvements. iv. During the 1970s, additional coffee output--much of it which stemnmed from yield increases--explained about 32% of the rise in the value of crop production; the sectoral growth over the past three years would have been halved if coffee were excluded. Of the remaining 68% of the increase in crop output during the past decade accounted for by non-coffee products, about 44% was derived from yield improvements and 56% from acreage expansion. With the country's coffee stocks having already reached the size of its annual exports, sectoral strategy will now have to be based increasingly on coffee diversification, not only to restore overall export and output growth, but also to offset a possible decrease in the real  -ii- incomes of a large segment of the rural population. In the case of non-coffee commodities, although past yield increases have by no means been small, the potential exists for achieving substantial improvements. V. Partly in response to the emerging constraints and the recent downturn in agricultural growth, the current Government has decided to accord greater priority to the sector. It has also recognized that public sector investment in agriculture, particularly in such areas as research and extension, has been disproportionately low and declining during the 1970s, and that a vigorous response cani be obtained from reversing this trenid During the 1970s, the share of agriculture as a whole in the Government's national investment declined by an annual average rate of 7% in real terms and this share now stands at about 8%. In supporting greater development expenditures in the sector, the Government has also identified the need to strengthen its knowledge of Colombian agriculture and has requested the Bank to assist it in its sector work. This paper is an attempt to bring together some of the existing information and to provide a framework for further work. Outline of an Approach vi. The overall goals of economic policy in Colombia at present are to achieve inter alia: a more rapid rate of economic growth; a lower rate of inflation; higher levels of exports: and greater employment generation and improvements in income distribution. In the country's experience, a significant degree of complementarity can be found among these objectives. Rapid agricultural growth has, by and large, been associated with price stability, particularly in view of the predominance of food items in the consumer price index. Similarly, exports and growth have also been closely and positively associated in the past, although the causal link between these variables is yet to be adequately established. Finally, during periods of rapid agricultural growth, employment and rural real wages have also grown significantly. During the 1970s, growing urban employment and agricultural development led by coffee, a labor-intensive crop, bestowed substantial benefits to people remaining on farms. In light of these factors, the approach adopted in this paper--which is the result of dis- cussions in Colombia--is to focus on policies that could assist in acceler- ating growth while at the same time furthering other key goals. Thus in addition to growth, attention is also directed specifically to measures that will: raise exports and improve the trade balance; increase the pro- ductivity of food crops and promote price stability; and contribute to rural development and assist in greater employment generation. Also crucial is the effect of coffee fortunes on stabilization policies; such m.acroeconomic considerations, however, are reserved for the forthcoming economic report- 17ii. An overview of the sector reveals that a faster pace of agricul- tural growth is predicated both on shifting the aggregate supply of agri- cultural commodities and the aggregate demand for them. To some extent, higher agricultural supply can be expected to be absorbed by additional future demand whirh is currently projected on the basis of growth in  -iii- incomes and in population in Colombia and abroad. A rough lower-bound estimate is that aggregate demand (domestic and external combined) for agricultural commodities will expand at some 3% annually during the 1980s. Furthermore, to the extent that improvements in productivity and efficiency are achieved, additional supply could possibly be accommodated by some lowering in real product prices. Beyond these considerations, however, efforts to boost supply will have to be supplemented by policies to stimul- ate domestic demand and to promote more exports. Towards this goal, an economic recovery must be achieved at home: macroeconomic policies and a number of specific steps--such as construction activities (private and public) including small-scale irrigation, drainage and flood control and other rural work--designed to spur aggregate demand in the economy will be discussed in the forthcoming economic report. A full treatment of effec- tive demand is beyond the scope of this paper. viii. This report represents, by and large, a common evaluation of Colombia's agriculture by the Bank and the Government. It examines, in turn, factors that can assist in raising the aggregate supply and influenc- ing aggregate demand in agriculture. As such, this report focuses on crops, reserving a discussion of livestock for a working paper available on request, and setting aside a detailed evaluation of livestock issues for further work. Chapter I provides an overview of sectoral performance and policy developments. In Chapter II, physical aspects of production and marketing are examined, setting out selected options for raising the efficiency and yields in the use of selected agricultural inputs, which can, in varying degrees shift the total supply of output. Chapter III is devoted to pricing considerations for augmenting the competitiveness of agriculture by affecting output prices, lowering input costs and improving the real exchange rate and other export incentives. Institutional con- straints and needed improvements are reviewed in Chapter IV. On the basis of these discussions, certain policy directions and elements for an invest- ment strategy are outlined in the last chapter. Policy Options ix. The thrust of government policy at present is to revitalize growth and exports and to contain food prices in the short term, while establishing priorities for development expenditures designed to produce results over the longer term. The bulk of short-term actions concern agricultural incentives through output and input pricing and through exchange rate and commercial policies. Longer term measures involve agricultural investments in enhancing yields and improving infrastructure. x. The scope for raising agricltural incentives through reforms in output pricing may not be large, though not insignificant, as indicated in Chapter III. The prices of most non-perishable food items subject to price interventions are already at or above world price levels. On the other hand, the potential appears to exist to modify the operations of IDEMA, the government purchasing agency, in restoring more reasonable seasonal price spreads. A more effective avenue for affecting incentives is in reducing input costs, most of which are above international levels on account of tariffs and other taxes and high transport and distributional costs.  -iv- Fertilizer is a case in point, for which the Colombian farmer is estimated to pay over two times world market prices. Given an intricate system of tariffs and taxes and high distribution costs, however, immediate cost reductions for fertilizer and other imported inputs may not be easy, although the recommendations in this report could help over the medium term. Furthermore, greater emphasis on agricultural research and extension services to generate and disseminate new technologies, and more efficient distribution of inputs will help to raise the levels of input use, parti- cularly in food crops for which the generation, adaptation and adoption of new technological packages have lagged behind. xi. Trade policies have had a strong effect on growth and exports in the past. With the trade reforms beginning in 1967 and favorable develop- ments in the world economy, the relative prices of exports began to be strengthened, leading to a rapid growth in exports and production. A significant and positive association between the real exchange rate and non-coffee exports (including livestock) has been found. The coffee boom of the mid-1970s, on the other hand, slowed down and reversed the trend in raising the relative price of exportables other than coffee, and the nega- tive effect on the so-called minor exports has been significant. In response, the current Government has established higher export subsidies for agriculture, in conjunction with some tightening of import restric- tions. A preferable alternative, however, would be to accelerate the rate of the depreciation of the Peso to roughly 25% annually over the next three years, and at the same time lower import tariffs and restrictions. xii. Selected longer-term measures to modernize agriculture further, to intensify input use and to attain greater efficiency in production and distribution are set out in Chapter II. It should be noted in this context that rural wages have, and may be expected to continue to, benefit from the type of production-oriented approach discussed. At the same time, inte- grated rural development programs, which have shown to be capable of advancing rural welfare, should also be vigorously pursued. Furthermore, in order to permit the most gains to be secured from policy reforms, it will be necessary to capitalize on the existing vitality of such institu- tions like FEDECAFE and the private sector in general, and in addition strengthen the functioning of other institutions that face serious diffi- culties. xiii. Although the production strategies outlined in this paper by and large emphasize productivity gains, bringing additional land into cultiva- tion and increasing the area covered by irrigation and/or drainage dis- tricts could and should complement this effort. But in so doing, priority should be given to lower-cost alternatives, such as rehabilitation of existing irrigation districts and drainage and flood control projects instead of concentrating on new schemes. Watershed management and forestry development should also become integral parts of a long term strategy for growth and for conserving the natural resources. Turning to yields, the generation and delivery of technological innovations should receive priority in the array of long-term measures. Research institutions are in need of rehabilitation and strengthening, and considerable scope for step- ping up research and extension has been identified. There is substantial  unexploited potential for intensifying the use of fertilizer and new seed variaties in non-coffee food crops. Marketing constraints also need to be relaxed if higher production were to be sustained: present marketing problems include inadequate information networks (a steadier and more accurate supply of nationwide price data for producers, for instance, through daily radio broadcasts of prices, could be helpful), institutional constraints and transport bottlenecks. Sufficient credit availability for production and marketing is also essential, and existing credit policies should be carefully examined, as discussed subsequently. Some Policy Priorities xiv. Broad objectives of agricultural policy, which emerge from this review are inter alia: coffee diversification, export promotion, and rural development. The production, processing and distribution of non-coffee commodities in both coffee and non-coffee zones can be assisted in several ways. Stimulus to food production is a major purpose of government policy at present. Export development should also receive serious attention. Expansion of both domestically consumed and exported categories can and should be promoted also through rural development strategies. These con- siderations are elaborated in Chapter V, which essentially represents a common assessment on the part of the Government and the Bank. xv. In pursuing the above targets, efforts on a variety of fronts can be helpful. The following represent priority areas for policy action: Research and Extension. Indigenous technical progress and the adoption of new technological packages-- developed externally and domestically--should be fostered, particularly in the case of several food crops. Steps have already been taken to initiate a larger investment than in the past for research and extension, and these efforts need to be continued. Marketing, Processing and Transportation. Marketing advances and the establishment of more efficient link- ages between producers and consumers would expand the developmental options, including more processing of products and agro-industrial development. With emphasis on non-coffee crops, such measures would con- stitute an agricultural diversification program, which is already underway under the auspices of FEDECAFE. Other Investment Priorities. To meet the Government's goals in agriculture, the following areas would also represent investment priorities; rural development and area development, minor irrigation and drainage, water- shed management, feeder roads, credit, and livestock development.  -vi - Exchange Rate and Exports. Policies to raise the real effective exchange rate are essential to sustain and protect profit margins and to support export promo- tion. While the positive impact of improvements in the real exchange rate on profit margins has been noted empirically, further study of this issue and the macro- economic implications of exchange rate policies would also be useful. In addition, a vigorous export campaign and identification and exploitation of foreign markets will be needed. Input Costs. A reduction in the cost of purchased in- puts would benefit all crops in varying degrees. In particular, means to reduce the cost of imported inputs must be investigated. xvi. Data and Analysis. The analytical and decision-making capabili- ties of the ministries at the national and regional levels need to be strengthened based on the development of a better data base for agriculture. xvii. Additional sector work is essential in at least some of the above areas. In particular, studies of trade policies and domestic pricing issues in agriculture should provide guidance for exchange rate and commer- cial policies as well as for domestic price support and price stabilization measures. A study of fertilizer pricing and distribution is also of high priority. In addition, three other areas may be identified in which investigation in the near term would be fruitful: Credit Policies, Coffee Diversification, and Labor Market Trends.  CO]LOMBIAN AGRICULTURE: SELECTED ISSUES AND SOME DIRECTIONS FOR STRATEGY I. OVERVIEW OF SECTORAL PERFORMANCE AND POLICY A. Composition of Production and Trends 1.1 Agriculture remains the most important sector in the Colombian economy, constituting roughly one quarter of GDP. 1/ Crop production and livestock activities 2/ are the major components of agricultural production, accounting for roughly 52% and 36%, respectively of the sector's value added, with the remainder provided by forestry, fishing, hunting and "others" (Tables I and II in the statistical appendix). The value of crop output is divided about equally among three major categories: coffee, other permanent crops (such as sugarcane and banana), and seasonal crops (such as rice, maize and cotton'). Seven basic staples -- rice, cassava, plantains, potatoes, maize, sugarcane for panela (non-centrifugal sugar) and beans--represent one-half of the va:Lue of crop production (Table III). 1.2 Colombia's land resources total 114 million ha, according to the 1970 census data, of which an estimated 17 million are estimated to be in pasture at present and less than 50 million are under forests. Of the remainder, just over 1 million ha are currently estimated to be devoted to coffee and over 3 million to other crops. Recent demographic work indicates that there are approximately 27 million people living in Colombia today. About one-third of this population, or 9 million people live in rural areas, out of which agri- cultural activities--distributed over 1.2 million farms--absorb roughly 2 million people, representing about 27% of the national labor force. 1.3 Agriculture's importance in the Colombian economy also stems from its contribution to exports, estimated to be 68% to 75% in recent years, as shown in Table 1 below. _/ Coffee continues to be the largest export item, although the combined share of other agricultural categories -- such as bananas, flowers, tobacco, cotton and cattle -- in commodity exports has risen to about 20% in 1981, while coffee's share has fallen from over 60% during 1977-80 to about 48% in 1981 (see Table IV). In 1980 agricultural exports were about 35% of the sector's value added, in contrast to imports of over 5% (Table V), which meant that the sector generated net exports of nearly 30% of domestic value added. Excluding coffee, this estimate of "surplus" is reduced to less than 2%, which is essentially the size of the contribution of flower exports. In the case of non-coffee food crops alone (i.e. excluding livestock and fish), imports totaled US$272.0 million in 1981 (see Table VI for details), with net 1/ This figure refers to agriculture as defined in the national accounts, composed of crops, livestock, forestry, fishing, hunting and "other" rural activities. A slightly more restrictive definition of "agropecuario" -- consisting of crops, livestock and other rural activities is also often adopted in sectoral analyses. 2/ This paper deals primarily with crops; livestock is treated in some detail in a separate annex, available on request. 3/ Considering legal exports only; inclusion of illegal exports of drugs, coffee and other products would raise this percentage significantly.  -2- imports of foodstuffs valued at some US$114 million. The availability of food for consumption is currently estimated to meet about 98% of FAO's daily per capita calorie requirement for Colombia of 2,364. 4/ Table 1: AGRICULTURAL EXPORTS AND IMPORTS, 1970-81 (millions of US dollars) 1970 1971 1975 1980 a/ 1981 a! Exports Coffee 467.0 400.0 672.0 2,361.0 1,421.0 Other Crops 74.9 71.1 257.8 505.0 481.4 - Flowers (1.0) (1.8) (19.3) (93.0) (110.0) Livestock 21.8 28.4 58.0 43.9 77.1 Fish 4.7 5.7 11.6 31.9 27.4 Agriculture b/ 568.4 505.2 999.4 2,945.8 2,006.9 - as % of all goods (77.3) (73.2) (68.2) (74.7) (68.2) Imports Foodstuffs 31.0. 53.8 97.2 325.5 272.0 Livestock 0.7. 0.7 19.2 73.0 n.a. Fish _n.a - 13.2 72.2 n.a. Agriculture n.a. 54.5 129.7 470.7 n.a. - as % of all goods n.a. (5.9) (8.7) (10.1) n.a. "Surplus" c/ Agriculture n.a. 450.7 869.7 2475.1 n.a. - as % of agricultural GDP d/ n.a. (23.1) (23.7) (29.8) n.a. Agriculture less Coffee n.a. 50.7 197.7 114.1 n.a. - as % of non-coffee agricultural GDP d/ n.a. (3.0) (6.0) (1.6) n.a. a/ Preliminary estimate bI Excluding "manufactured" food products, which, for instance, were valued at about US$50 million in each of the last two years. c/ A rough measure defined as difference between value of exports and imports. d/ Using official exchange rate to convert dollars into pesos. Source: Banco de la Republica, economic mission estimates. 4/ From the World Development Report, the World Bank, 1982. Alternative estimates imply quite different nutritional situations: for instance, Instituto Colombiano de Bienestar Familiar, "Hoja de Balance de Alimentos 1972-76" estimates an average daily intake of 2,157 calories satisfying 109% of a 1,970 calorie recommendation; Plan de Integracion Nacional 1979-1982, DNP, on the other hand, implies a more serious problem (page 230), which appears to be based on an excessive nutritional requirement.  - 3- 1.4 Since 1960 agriculture has grown, albeit erratically, at an estimated annual rate of about 4.2%, which is roughly 1.5 percentage points below the growth rate for the economy as a whole. The sectoral share, in GDP has declined from about 32.7% in 1960-64 to about 25.7% in 1978-81--a phenomenon associated with the growth process of a country. 5/ Agricultural growth remained particularly buoyant since the mid-1960s through most of the 1970s averaging 4-5% between 1967-79. Between 1978 and 1981 the growth rate slowed down to about 3.2% annually, and little growth in output is projected for 1982, partly as a result of unfavorable weather and partly because of other con- straints discussed in this paper. Over the long term, on the other hand, the sector has expanded faster than the growth in population (para. 1.6), and its contribution to incremental GDP has been roughly one-fifth of the total, as shown below. Table 2: CONTRIBUTION OF AGRICULTURE TO GDP, 1960-81 (in percent) Share in Annual Growth Rates Contribution to GDP GDP Agriculture GDP Growth 1/ 1960-64 32.7 4.8 3.1 21.1 1964-67 30.7 4.6 2.9 19.3 1967-74 28.2 6.7 4.3 18.0 1974-78 26.3 5.4 4.5 21.9 1978-81 25.7 3.7 3.2 22.2 1/ Percentage of GDP growth explained by the expansion in agricultural production. Source: Banco de la Republica, economic mission estimates. 1.5 Over one-half of the additional value of domestic production was accounted for by additional exports during the 1970s. 6/ This high proportion was mostly derived from coffee, but exports of other products also rose substantially, doubling in real terms during the past decade. However, since 5/ The share of agriculture in Colombia's GDP is nearly twice the average for middle income countries, partly as a result of a continuing large proportion of high value cash crops such as coffee in the value added, and partly from the strong long-term performance of the sector relative to others in the economy and compared to agriculture elsewhere. 6/ Values of exports and domestic production are compared in rough terms, using official exchange rates.  - 4 - this increase in exports took place over a small base, the additional exports of these products were a relatively small part (about 13%) of additional production, and most of the incremental output contributed to higher domestic consumption. Moreover, imports of foodstuffs tripled in real terms -- although also from a small base -- which contributed to a higher availability of non- coffee items for domestic consumption. Ignoring stock changes, the total availability of all non-coffee agricultural commodities for domestic consump- tion--defined roughly as domestic production plus imports less exports -- is estimated to have increased by nearly 5% annually between 1971 and 1980, imply- ing a significant improvement in per capita consumption (roughly 2.7%). 7/ 1.6 In the 31 years since the 1951 census, Colombia's total population has more than doubled implying an average of 2.6% per year. In contrast to an estimated urban population growth of 4.4% annually, rural population has grown at an annual rate of less than 0.8% during this period, and its growth has now slowed down to the point of virtual stagnation. A recent Bank Economic mission has assembled information showing that a previous trend of deterioration in labor market indices for the country as a whole began to be reversed since the early to mid-1970s, and this improvement has continued through the rest of the decade. In particular, from 1973 to 1978, an employment expansion of the order of 6.2% annually is estimated to have taken place, strong supporting evidence for which can be discerned from data on real wages not only in urban centers but also rural areas. Economic growth and export expansion were driving forces behind the employment growth, and this relationship may be expected to continue to affect future trends in labor market indices. B. Elements of Growth and Problems The Role of Coffee 1.7 About 32% of the increase in the value of crop production between 1970 and 1981 was provided by coffee, and over the past three years, the sectoral growth rate would have been halved if coffee were excluded. Current World Bank projections indicate an annual growth rate in the world demand for coffee of only 1.3% during the 1980s. Therefore unless supply shortages from other coffee sources occur, the demand for Colombian coffee is not likely to grow significantly. There is already a problem of stock accumulation, with stock levels currently approaching the volume of exports (Chapter III E). It would appear that coffee diversification, a policy the Government has been pursuing over the last decade, will need to be stepped up both to sustain overall growth and to meet income objectives in the coffee zones (see paras 3.37 to 3.40). 7/ Reliable estimation of the food availability for consumption is beset with problems concerning the reporting and aggregation of production data, the timing of exports and imports, and the measurement of stock changes. Plan de Integracion Nacional (Volume 11, page 267) reports that the availability of food alone rose by 4.3% annually between 1966-74 and by 3.5% between 1974 and 1978.  -5. Area and Yields 1.8 The increase in coffee production during 1970-81 on a whole was, to a large extent, obtained through yield increases, while for the other crops, roughly 56% of increased production was derived from area expansion and about 44% was based on yield improvements. Future increases in the output of non- coffee products could be obtained from a combination of acreage expansion and productivity gains. According to a recent study,8/ roughly 6.6 million ha of land is suitable for more mechanized cultivation, although a part of its utilization would require varying degrees of investment in land development, irrigation, drainage and flood control. 1.9 The yields of cereals such as barley and maize remain low, while those of coffee, rice, sugarcane, cotton, and tobacco compare favorably with international average levels as indicated in Table 3 (see Table VII also). Banana and flowers are also very competitive, although exact estimates of relative yields are not readily available. It is no surprise that the more competitive crops are export commodities. The yield constraints of non-exported crops, as well as the scope for further improving the performance of export items, should be examined as should a few potentially important crops such as palm oil and rubber which so far have not been studied sufficiently. 1.10 On average, yields have been positively associated with technological packages consisting of farm machinery, new seeds, fertilizer, pesticides, research and extension. According to the results of a preliminary regression analysis by this mission based on production data from 1970 to 1981, farm machinery and land were significant factors affecting the production of all non-coffee products combined, while fertilizer and new seed varieties explained a significant part of the production gains in coffee. The impact of weather has not been analyzed. Table 3: YIELD COMPARISONS FOR SELECTED CROPS, 1981 (kg/ha) International Colombia Average Rice 4,354 2,855 Barley 1,567 1,987 Maize 1,399 3,370 Seed Cotton 1,645 1,369 Coffee 752 574 Sugarcane 86,333 56,102 Tobacco 1,653 1,313 Source: FAO, Production Yearbook, 1981 8/ Instituto de Estudios Colombianos, "Recursos para el futuro: Colombia 1950 - 2000", Biblioteca Banco Popular, Bogota, 1981, pp. 163-166.  - 6- Price Incentives and Trade Policy 1.11 The market prices of many of the major non-coffee commodities in Colombia compared at official exchange rates, are at or above border price levels. _/ The agricultural price index is estimated to have increased faster than the overall price index during the past decade as a whole, although this trend began to be reversed in more recent years (Table VIII). In addition, modest yield improvements have also helped to strengthen the profitability of agriculture. On the other hand, production costs have been rising more rapidly than output prices, and the former stand above international levels for many crops. lU/ Increasing real wages for rural labor in the second half of the 1970s is a major component of rising production costs (paras 2.38 and 2.39). In the case of input-intensive crops such as rice, cotton, sorghum and soy- beans, it has been estimated that production cost escalation has outstripped the increase in product price even after accounting for higher yields, suggest- ing a profit squeeze. 1.12 The export of crops such as bananas and flowers responded strongly to export incentives which were increased during the 1967-74 period (Table IV). On the other hand, an emerging concern is that export crops face declining profitability in view of a falling real effective exchange rate 11/ and a structure of export incentives that until very recently has clearly favored non-agricultural commodities. Furthermore, import tariffs and quotas provide protection to importable food crops such as wheat, soybeans and maize, changing their relative prices against exports, while import restrictions on a variety of inputs raise production costs. C. A Needed Focus 1.13 Colombian agriculture is well-endowed with land and entrepreneurial resources and it has a comparative advantage in the production of several pro- ducts. The sector has developed rapidly over the long run, performing well 9/ An analysis of price policy is given in R. Junguito Bonnet, "Agricultural Incentives in Colombia", IBRD draft paper, 1982. See also E. Sarmiento Palacio, Inflacion, Produccion y Comercio Internacional, FEDESARROLLO, 1982. The market prices of maize, soybeans, sorghum and wheat were estimated to be 133%, 48%, 52% and 50%, respectively, above world prices in 1980, and of beans and barley, 73% and 54%, respectively, higher than world prices in 1979. The prices of rice and cotton have been slightly above international levels, while those of banana and flowers have been below world prices. 10/ Ibid. 11/ The real effective exchange rate (see para. 3.28) for agricultural exports has declined by some 47% between 1974 and 1980 according to Sarmiento, op. cit. A deterioration of about 28% for all commodities is reported in J. Ospina Sardi and M. Carrizosa Serrano, "Evolucion y Perspectivas del Certificado de Abono Tributario," Revista de Agricultura, No. 856, Bogota, November 1981. The real exchange rate (i.e. excluding taxes and subsidies), on the other hand, has deteriorated by a smaller amount.  - 7 - relative to other sectors in the economy and compared to agriculture else- where. Growth also became widely distributed as real wages rose in rural areas, and the demand for agricultural products picked up considerably. Improvements in the standard of living of the rural population following a strong rural outmigration have lessened the pressure for land reform even though land distribution remains very skewed. The Government's renewed emphasis on agriculture stems from a perception that the sector has ample potential for further development and for contributing to national growth and price stability -- the need to contain food costs, which constitutes over 40% of the consumer price index, is an often stated goal -- and also that agriculture would respond strongly to favorable policies. 1.14 Yet it is becoming evident that the sector also faces important con- straints to further expansion: some related to sluggish external and internal demand, others to trade and incentive policies, and yet others to considera- tions of productivity and technical progress. High input costs, particularly for fertilizers, plus transport and marketing constraints are significant. Some of the factors that contributed substantially to the past development may be less favorable in the future. For example, world demand facing Colombia for coffee (as well as cotton and sugar) is projected to remain depressed in the medium term, which brings into focus the need for agricultural diversifica- tion. Acreage expansion for cultivation is also likely to be relatively more costly in the future, which emphasizes the drive for productivity gains. 1.15 The technical possibilities for raising non-coffee production are considered to be substantial based on the scope for increasing the use of "modern" inputs for a number of crops and livestock. However, rapid develop- ment is also predicated on lowering transport costs, on the opening up of more markets and on the strengthening of the competitiveness of Colombian products abroad. Favorable trade policies, based on a properly valued exchange rate and supported by export promotion measures, would be essential. The possibilities for improving domestic price policies may be more limited, though by no means insignificant. 1.16 In light of the above, this paper reviews two sets of issues: those that affect the production environment through better input provision, transfer of technology, improvements in production efficiency and the like (Chapter II), and those that involve incentives through pricing of outputs and inputs and trade policies (Chapter III). Institutional problems are reviewed in Chapter IV. The last section outlines government objectives, and how policy responses and investments could fit these goals. 1.17 To ensure net economic benefits from agricultural strategy, a macro- economic analysis of additional investment in this sector vis-a-vis elsewhere in the economy, and of the macro effects of trade and price policies would be needed. Knowledge of the sector itself--the sources of past growth, the nature of present constraints and the effects of policy--also needs to be strength- ened. Some suggestions for further work in these areas are set out at the end of the paper.  - 8 - II. INPUT PROVISION, INVESTMENT AND TECHNOLOGY A. Water Development and Management 2.1 About 600,000 ha, the equivalent of about 15% of the total cropped area, are estimated to have some sort of irrigation, drainage or flood control available to it at present; 80% is under private schemes and the rest under government schemes. 12/ The issue of water supply in Colombia concerns both the improvement of existing facilities and the provision of new ones by private agencies, with or without government support, and in some instances directly by public agencies. While private irrigation schemes -- located predominantly (80%) in the fertile Cauca Valley -- are generally run efficiently and involve lower costs, most public irrigation districts are underutilized as a result of poor maintenance of infrastructure and poor water control. In response the Government has embarked, with Bank financial assistance, on a phased rehabilitation scheme beginning with eight districts or 76,000 ha, in the first phase of the project, and seven other districts to be included in a second phase. In addition another 17,000 ha are envisaged to be improved in the Maria La Baja district with IDB financing. 2.2 On the provision of additional irrigation, care needs to be exercised in limiting such investment to areas where water is indeed the constraint to higher yields and to obtaining two crops a year. For rice, yield levels are as high as can be reasonably expected. Yields for other large-scale field crops such as sorghum, maize and soybeans on the other hand, are low but this has resulted primarily from the fact that farmers continue to follow traditional farming practices (i.e., with little or no improved seeds and agrochemicals) and not necessarily because water is lacking. Under these circumstances, it would be essential to restrict investment of scarce public resources (on the order of US$4,000/hectare as recently estimated) only where it can be clearly shown that water is limiting increased production, and high returns are plausible. 2.3 On the other hand, public investment in agro-hydraulic work for flood control and drainage could change areas presently suitable only for extensive grazing into land that can be used for permanent crop farming. Such investment also appears cost-effective to the extent that it usually involves an outlay of only about 25% per hectare of that needed for irrigation. However, various problems related to recovery of operation and maintenance costs in flood control/drainage districts are encountered, because a national tradition in the operation of this type of district is yet to evolve. In addition technical problems are encountered in the drainage of tropical flat low lying areas as compared to drainage of land in moderate climates. 2.4 Investment in irrigation can be more easily justified where large sunk cobts already exist, for example, in the case of the Bank's first irrigation rehabilitation project. A problem requiring particular attention is 12/ iother 120,000 ha under government control is cultivable, but not actually irrigated.  - 9 - that of minimum district size. In the past selection of public investments has been guided more by political than agricultural or engineering criteria, resulting in the establishment of such small districts that diseconomies of scale for operation and maintenance resulted. Project experience suggests that for public investment, districts smaller than 10,000 ha may not be justified. 2.5 Two particular problems appear to be unique in Colombia's development of new public irrigation and drainage schemes, both the result of decisions made at some time in the past by the Department of National Planning (DNP). The first problem is that no budgetary allocations are permitted to provide for operation and maintenance of schemes while under construction, although the average completion period is on the order of five to six years. The second problem is that the necessary on-farm development works are considered to be the individual farmer's private responsibility for which he often has no expe- rience and is ill-equipped and which requires a substantial amount of agricul- tural credit, provided entirely at the farmer's risk. Recommendations 2.6 Although the potential for expanding agricultural production on new land facilitated by some form of water control is substantial in Colombia, much of it remains generally a costlier option than that of the opening of new rain- fed frontier land or crop intensification on existing cultivated areas. Where new irrigation and water control schemes are warranted, a careful examination is needed of who the beneficiaries are and of what kind of cost recovery charges are feasible. Meanwhile, private investments in irrigation and drain- age work should continue to be supported when they are technically and econo- mically justified, with credits and appropriate incentives, and research should be developed with a view to bringing about higher efficiency in the use of water through the development of improved land leveling techniques, and, more generally, through use of cost-reducing alternatives, such as the puddling for rice cultivation. B. Conservation of Renewable Natural Resources 2.7 Colombia is endowed with vast expanses of heterogeneous forests that have been exploited at an increasing rate in both tropical lowlands and cold highlands. During the past 20 years, forest resources have been reduced by an estimated 10.5 million ha, corresponding to almost 20% of the approximately 55 million ha of forests that existed in 1960. Deforestation of the mountain areas as a result of the establishment of new settlers and the traditional replacement of the forest cover and other natural vegetation by crops or pastures have created serious erosion and soil conservation problems. Effects of this erosion include more frequent and more serious flooding, reduced water flows in dry periods for hydropower generation and for water supply systems. Increasing siltation of reservoirs is increasingly evident. Protection and management of river basins and a rational utilization and management of tropical hardwood forests are critical for preserving Colombia's abundant land and water resources and for ensuring a continuing supply of wood for domestic and export markets.  - 10 - 2.8 The Government has been aware of these issues for many years. In 1969 it set up the National Institute for Renewable Natural Resources and the Environment (INDERENA) which subsequently established a natural resources code listing the recommendations and rules for properly managing the country's resources. But the task is enormous and INDERENA has been hampered by shortages of funds and trained personnel. Nevertheless initial steps are being taken such as the identification of critical areas for conservation and reforestation programs in the areas of influence of hydropower projects and the development of the Bank-assisted Upper Magdalena Pilot Watershed Management Project. Recommendations 2.9 A greater capacity to implement programs needs to be developed, which, will clearly require greater public awareness of the problems. INDERENA's capabilities for policy implementation and project preparation should be strengthened to assure long-term consistency of development in conservation of natural renewable resources. In particular: - conservation education programs need to be stepped up; - a program of research and base-line studies on critical areas is called for to enable INDERENA to evaluate policies and projects, funding for which might need to be sought externally. 2.10 The ad-hoc approach to forestry development needs to be replaced by a more systematic policy. In particular: - the execution of pilot projects, such as the Upper Magdalena Pilot Watershed Management Project, and the follow-up of large-scale projects should be placed within the framework of a national forest and natural resources development program; - the forestry components of various rural development projects, despite their small size, should be geared to addressing problems of how to properly harvest, utilize and manage the tropical moist forests of Colombia, how to design and administer "forest coloni- zation" projects and how to develop and manage large-scale water- shed management projects; - inexpensive small-scale reforestation activities should be stepped up, particularly under the rural development and settlement pro- jects such as the Integrated Rural Development Program (IRDP) and Caqueta; - large-scale industrial reforestation potential should also be investigated and promoted where feasible; and - spc-;ta-:eous 3ettlement should be guided by the development of soil cl- .i-a on and development of forest colonization projects (as opposed to the traditional colonization based on agriculture onl-:, which is often inadequate for moist tropical zones).  - 11 - - A research program analogous to the National Agricultural Research Plan (PLANIA; para. 2.16) should be developed on the basis of the National Plan for Forestry Development (PLANIF), and implemented with external assistance, if needed. In the meantime, the ongoing projects should receive full undiluted attention. C. Fertilizer 2.11 Coffee, potato and rice account for two-thirds of all fertilizer con- sumed. For the remaining crops, the intensity of fertilizer use in Colombia remains comparable to or below the levels in Latin America on average, implying the considerable scope for more intensive use of this input.13/ More ferti- lizer application is particularly cost-effective for small-scale farmers grow- ing subsistence crops such as maize, beans and cassava. In the case of crops such as potato, net gains could be obtained from a more balanced use of fertilizer, than is now practiced. For instance, for these crops, fertilizer use is estimated to be far from technically optimal levels because commercially available generalized formulas are not always suitable to the large variety of ecoclimatic conditions found in Colombia or because of inadequate extension services. The increasing use of foliar analysis and more refined assessments of fertilizer needs and the dissemination of this knowledge by the extension services could result in increased cost-effectiveness in the use of this input. 2.12 In addition a sub-optimal use of the input from an economic viewpoint has resulted from high farmgate prices for fertilizers--reaching two to even three times the world market levels. As will be discussed later, these prices result partly from taxes and tariffs (including port charges), which account for about 15% and 30% of the price charged the farmers. Fertilizer import and price policies have been under active surveillance and the control of the state and intervention has been frequent as a result of pressures from one group or another. However, there has never been a concerted and deliberate policy with clearly spelled out objectives and definitions of the desirable levels of sub- sidies and taxes to be borne by the various parties involved, i.e., the indus- try, the agricultural producers, the Colombian Port Authority (COLPUERTOS), the truckers and the distributors. Such a policy is urgently needed, possibly aided by a fertilizer policy group or some kind of a coordinating mechanism (see Chapter III C). D. Research and Extension 2.13 By and large, basic research efforts in the past may have been adequate. For instance, in most cases -- except for a few crops such as sorghum and cotton -- the combined efforts of plant breeders and pathologists have been able to provide research results that have enhanced the genetic yield 13/ Precise comparisons are difficult. Rough computations based on FAO data suggest a significant scope for raising the level of fertilizer use in Colombia.  - 12 - potential while ensuring disease resistance. According to data on crop yields, the impact of agronomic research and extension has varied significantly across crops, and, on average, has deteriorated over the last decade. It is in the area of cultural practices concerning the adaptation to the location-specific ecological and socioeconomic circumstances that progress has particularly lagged behind. This is especially true over the last five years for many crops -- such as soybeans, wheat, corn and cotton -- which, in addition, were also facing declines in world market prices. It is now urgent that cultural prac- tices, such as time of seeding, land preparation, water and fertilizer use and pest control, be improved in order to restore crop profitability and competiti- veness in domestic and export markets. 2.14 A reason for the deterioration in the generation of new technologies has been the decrease in funding of the Colombian Agricultural Institute (ICA), with progressive overburdening of the Institute with regulatory and policing functions not related, and sometimes at odds, with its research and extension objectives. Partly as a result, a number of first-rate scientists have left and the quality of ICA's research has suffered. The creation of privately supported crop research institutes for export-crops, sugarcane, coffee and banana, has been an acceptable alternative, but since basic research by and large is a "public good," it remains to be seen whether private efforts will be adequate, and in any event, not all crops (especially food crops) lend them- selves to this type of approach. 2.15 Extension has also suffered from ICA's fragmentation and lack of policy orientation. There are some 2,000 private extensionists as well as numerous public or semi-public institutions responsible inter alia for exten- sion and these appear at times to overlap geographically and functionally. The record of the various extension services in Colombia is mixed and remains to be assessed. Recommendations 2.16 The Government should confirm its priority for strengthening applied and adaptive research and: - define ICA's mandate, particularly clarifying its role in the extension of technology to small- and large-scale farmers; - implement a rehabilitation program based on the development objec- tives for the sector and on the existing PLANIA, 14/ possibly in the form of one or two projects with external assistance to ensure adequate funding and continuity; - define the role and responsibility of the private sector in carry- ing out and funding research; and - develop a comprehensive human resources program with sufficient incentives to enable ICA to recruit and retain qualified and moti- vated staff. 14/ National Agricultural Research Plan for ICA, a basic five-year program for the development of research in Colombia, prepared by ICA in 1980.  - 13 - 2.17 An assessment of the extension services should be carried out to determine the deficiencies and their remedy. Then, recommendations should be made concerning the possible reorganization, reunification or coordination of the presently fragmented extension services and the development of strong link- ages with research. 2.18 Some follow-up steps to the above have already been taken to monitor the rehabilitation effort and to define the research objectives and policies. In particular, an initial research project, suitable for external financing, has been prepared by ICA with the assistance of the Planning Ministry. E. Marketing 2.19 While agricultural activities have accounted for a declining share of gross domestic product (para 1.4), food marketing activities have represented a growing percentage of GDP (estimated to be 15.8% in 1950-59 vs. 17.1% in 1976- 78). As in other countries, the growing share of marketing services has been associated with high urban population growth rates, rising per capita incomes, changing consumption patterns and rising marketing costs. 3 / 2.20 The marketing system for perishable food has traditionally featured large numbers of rural assemblers, collecting small quantities from scattered farms, or in periodic rural markets, selling to regional assemblers who, in turn, sell to assemblers in major cities. The products are distributed to con- sumers through a network of wholesalers and retailers. The farmers' share of final consumer price is relatively low (15% to 40%) and physical losses are high (up to 30% for some products). 16/ 2.21 Grains and oilseeds on the other hand are marketed through more spe- cialized and larger volume channels, with commercial farmers (especially of sorghum, corn, soybeans, cotton) often selling directly to industrial proces- sors. The guaranteed price support program of the Agricultural Marketing Institute (IDEMA) often provides floor prices for small-scale producers. Imports, controlled by IDEMA, affect consumer and producer prices. IDEMA is expected to be self-supporting in this function and therefore has pursued a fairly prudent policy of fixing guaranteed prices just below the expected market price levels, purchasing only those quantities which its financial resources are expected to cover. It appears that this limited role of the pro- gram has been helpful in assisting low income producers. IDEMA's role in price stabilization has also been a limited one which may be consistent with the need to maintain partial seasonal price variation to provide incentives for farmers and intermediaries to store products. 15/ Silva, A. and R. Albornoz "El Comercio de Alimentos en Colombia" Revista de Planeacion y Desarrollo, January-April, 1979, p. 40. 16/ Ibid. p. 49.  - 14 - 2.22 Food wholesaling and retailing also involve a large number of rela- tively small-scale firms. Combined wholesale-retail margins are estimated to range from 28% to 36% compared to 24% in the United States and Western Europe 17/ in spite of the fact that labor costs, a major component in food distribution, are significantly lower in Colombia. (For a better comparison, differentials in transport costs should be factored out). It has also been shown that as a result, low income consumers pay significantly higher prices than middle and upper income consumers, although employment creation, particu- larly for women, associated with petty marketing in the case of the former should also be borne in mind. 18/ High rates of physical losses of the product have also been identified. These factors indicate the potential for improve- ments in marketing. Recommendations 2.23 A recent Bank mission has identified some measures to improve market- ing efficiency. Building up associations of participants in various stages of marketing in order to improve information and overall efficiency in the market- ing chain has been proposed as a key objective. Support measures include: (a) institutional development; (b) human resource development; (c) pilot projects; and (d) marketing credit. These issues are discussed in a separate report on agricultural marketing, available on request. An Agricultural Diversification and Marketing project is under preparation by the National Federation of Colombian Coffee Growers (FEDERCAFE), which would be suitable for external financing. F. Agricultural Credit 2.24 During the period 1970-80, growth in agricultural credit was erratic, and the annual average increase in outstanding loans averaged 1% in real terms as shown in Table 4 (see Table XI also), which was well below the sectoral output growth rate for the same period (4.6%), showing a fall in the financing per unit of output. 19/ Among the institutional sources, the Agricultural Financing Fund (FFAP) has become more important as a source of funds in comparison to other traditional sources, such as the Agricultural, Industrial and Mining Credit Bank (CAJA), the Colombian Institute for Agrarian Reform (INCORA), and the commercial banks. For example, INCORA's outstanding portfolio decreased almost 40% in real terms between 1970 and 1980. 17/ Ibid. p. 47. 18/ Ministerio de Agricultura, Mercadeo Agropecuario: Diagnostico, Bogota, 1976 p. 106. 19/ A more rigorous approach would take into account the various loan maturities in the loan portfolio.  - 15 - Table 4: GROWTH IN AGRICULTURAL VALUE ADDED AND AGRICULTURAL LOANS OUTSTANDING, 1970-80 a/ (annual percentage in real terms) Agricultural Agricultural Value Added Loans Outstanding 1970-75 5.17 -0.26 1975-80 4.13 2.34 1970-80 4.65 1.03 a/ Year-end. Source: Banco de la Republic and Revista Nacional de Agricultura, Bogota, November, 1981. Interest Rates 2.25 Interest rates vary over a 12% to 36% range in nominal terms, depend- ing on the institutions involved and the type of credit lines. Effective rates are somewhat higher because interest is usually charged quarterly in advance: in 1982, FFAP rates to medium- and large-scale farmers for most crop and live- stock activities were 24%; CAJA rates on its own resources for similar purposes were 21% to 28% for small-scale farmers and 39% for large-scale farmers; in comparison commercial bank rates on own resources were 40%-46%. The minimum savings rates for time deposits were 21% and 27% at CAJA in comparison to returns of 32% to 36% on commercial papers and an end-of-the-year inflation rate of about 27% in 1981. 2.26 Most agricultural lending continues to be subsidized, with interest rates slightly negative in real terms and considerably below the average borrowing costs. In the case of CAJA, the spread between the average cost of its own resources and its main lending rate (i.e. for small-scale farmers) is inadequate. Furthermore, interest rates charged to medium- and large-scale farmers for FFAP funds are in some cases below the rates charged by CAJA to small-scale farmers. 2.27 At current rates of inflation, nominal interest rates (even allowing for somewhat higher effective rates) would need to be increased: however, because of the complex and interlocking structure of interest rates and deposit rates, breaking away from the existing system cannot be done overnight. For instance, CAJA would find it difficult to increase its rates to small-scale farmers, when these, in some cases, are already above the FFAP rates for larger farmers. The adjustments in this case would, therefore, have to begin with FFAP raising its rates to its beneficiaries. 20/ Bringing FFAP rates closer 20/ This has in fact been the policy of FFAP in the past, but the pace should be accelerated.  - 16 - to market rates would in fact decrease what constitutes presently the main subsidy to Colombian agriculture, and a subsidy granted, by and large to a very limited number of large-scale farmers. 21/ Small- vs. Large-Scale Farmers 2.28 Even with the interest rate subsidies, the demand for credit from medium- and large-scale farmers has slackened in the last two or three years, as confirmed by the balance of uncommitted FFAP funds at year's end. 22/ The depressed demand explains in part the slow increase in the agricultural port- folio compared with overall sectoral growth. The recent demand constraint signals the malaise among the medium- and large-scale commercial farmers -- specifically the 7,000 clientele of FFAP -- and their decreasing interest in agricultural investment. On the other hand, the demand problem should not be generalized across the board, since little evidence exists of inadequate demand for credit on the part of small-scale farmers. The shift in emphasis toward FFAP, however, implies that the supply of credit has been increasingly directed toward medium- and large-scale farmers, contradictory to the perceived emphasis of the last five or six years on small-scale programs such as the Integrated Rural Development Program (IRDP). 2.29 The relative shift in credit supply in favor of larger farmers is at least in part the consequence of the rapid financial deterioration of the two principal sources of institutional credit to the small-scale sector, viz CAJA and INCORA (see below). This deterioration of the latter's performance can be largely traced, as in many other developing countries, to unsound credit poli- cies, which have lead to the progressive erosion of non-renewable or hard-to- renew financial resources lent at subsidized rates. IRDP credit funds provided by external sources (IBRD, the Inter-American Development Bank (IDB), the Canadian International Development Agency (CIDA)) have been a palliative but have not changed the fundamental nature of the problem; these funds have reached only certain subgroups of farmers, leaving the others unattended or more poorly attended than before. There is a risk that the second IRDP pro- ject, by focusing on new beneficiaries, will leave aside the beneficiaries of the first IRDP. Similarly, in the case of INCORA, despite the continuing availability of credit under certain projects (such as the IBRD-financed Caqueta project), the total credit availability to all INCORA credit benefi- ciaries has actually decreased in real terms. These outcomes are unsatisfac- tory since very few of the old beneficiaries (of IRDP or INCORA) are believed to have graduated from the programs. 2.30 Caja Agraria. The situation facing CAJA was summarized in an Aide Memoire to the Minister of Finance dated November 21, 1980, following a Bank mission in August 1980, which assessed the institution's financial situation. 21/ Reducing this lending subsidy would also allow FFAP to raise the rediscount rates and margins and probably to increase the generation of funds via direct borrowing rather than from taxing the financial banking system. 22/ In contrast, the yearly allocation of subsidized credit formerly was taken up and depleted very early during the previous years.  - 17 - Several follow-up missions, in connection with the IRDP projects for which CAJA executes the credit component, indicate little change from the 1980 evalua- tion. CAJA's accumulated losses as of December 31, 1980 totalled Col$4,622 million, representing 84% of its total paid-in capital. The ratio of interest and commissions paid plus personnel costs over interest earned continued to increase from 107% in 1979 to 113% in 1980, which points to the two major fac- tors of CAJA's financial weakness as quoted in the above Aide-Memoire: "(i) as a result of policy and political decisions, CAJA has maintained a level of services and coverage that is not commensurate with its financial resources and capabilities; and (ii) the inability of CAJA to control the size of its staff combined with a strong staff association has resulted in a salary bill which on average is one-half of CAJA's income." 2.31 INCORA. INCORA's situation and the Bank's views on it have been sub- jects of numerous internal memoranda and exchange of letters with the Govern- ment. In 1974 the Government began to emphasize integrated rural development on grounds of its effectiveness; Central Government priority for agrarian reform waned and support to INCORA declined steadily. Yet the institution continued to receive strong local support from its beneficiaries and the local communities, because of its rural development activities. It could well be that from the last two administrations' points of view, the right balance was struck between keeping INCORA alive and limiting its scope of action. However, because of the increasingly political orientation of the institution and weak project management, particularly in financial administration and accounting, it became even more difficult to apply strict financial and managerial principles, and the efforts on the part of the Bank to resolve the financial problems have not been successful. The poor credit recovery, combined with declining govern- ment budgetary appropriations, contributed to the significant decline (in real terms) of INCORA's lending, which in 1980 amounted to no more than 3% of total agricultural lending. 2.32 A priority for the new administration would be to redefine the man- date of INCORA's responsibilities. INCORA was divested in the past of the technical responsibility for irrigation and drainage. Its role in credit pro- vision is dwindling and its record concerning loan administration and recovery, is worse than that of CAJA, setting aside the fact that INCORA is not a bank and cannot mobilize savings. INCORA's land titling program by itself does not justify the need for such a cumbersome organization. A key issue relates however, to the rural development activities that INCORA carries out in certain areas, and the political intermediation involved in this process. Recommendations 2.33 The interest rate structure, savings mobilization and lending rates and conditions to agricultural producers should be reassessed, complementing recent World Bank work on Colombia's financial sector policies. In parallel with this study (see para. 5.16), a major reorganization and rehabilitation of CAJA is called for based on an assessment of: (a) the objectives and mandate of the institution; and (b) the activities CAJA could carry out on a profitable basis, and any others that should continue to be subsidized. In the case of  - 18 - INCORA, the new administration should redefine its mandate and objectives before new steps can be taken. G. Rural Labor and Income 2.34 Movements in the real wage show that between 1935 and 1964 the pur- chasing power of agricultural workers probably did not increase significantly, and its level was in fact 10% lower than that for unskilled construction workers. 23/ In 1964 a far greater proportion of the poor were in the rural areas than at present. Some improvements in rural wages occurred in the late 1960s but it is only with the employment expansion of the 1970s that real agricultural wages began to rise significantly. Changes in survey methods between 1971 and 1976 may have overstated the true gains to some degree; never- theless, between 1970 and 1976 real agricultural wages are estimated to have risen by about 23%, and another 22% between 1976 and 1980. Consistent with the recent slowdown in the sectoral growth, a small decline in real wages is reported to have occurred in 1981. Rapidly growing urban employment in the 1970s offered jobs to rural immigrants and at the same time, labor-intensive agricultural development was taking place in certain rural areas such as the coffee regions, with the new plantings of the caturra variety, and cotton areas were competing for labor with clandestine drug plantations. Rapid expansion of exports had a strong salutory impact on labor demand and rural wages. These factors even led to seasonal and regional labor shortages which in some cases also resulted in increasing mechanization (e.g., cotton harvesters in cotton areas). 2.35 Enhanced demand for agricultural labor and slower growth in avail- ability provided much of the basis for the real wage growth estimated -- as an average for hot and cold regions in the country -- for the second half of the 1970s. The rate of growth of agricultural labor productivity (value added per worker) over 1974-79 has been estimated by the Economic mission at roughly 3.7% annually. Furthermore, real minimum wages also rose beginning in 1973. Increases in the real agricultural wage during the 1970s directly or indirectly benefited most of the rural community, which includes the poorest segments of the Colombian population. Yet, because agricultural and overall growth have slowed down since 1978, real wages have probably stagnated according to some calculations utilizing DANE information. The prospects of labor-intensive crops such as coffee and cotton and of alternative development possibilities in and outside agriculture will affect the future outlook for demand for agricultural labor. An examination of likely future trends in the labor market, in light of an analysis of the past experience and recent developments in Colombia, would constitute an important area for investigation. 23/ These and remaining estimates in this section are from Miguel Urrutia, "Winners and Losers in Colombia's Recent Growth Experience", FEDESARROLLO, July 1981, and the recent IBRD economic mission's calculations usiing data from the National Department of Statistics (DANE).  - 19 - III. COMPETITIVENESS AND INCENTIVES A. General Considerations 3.1 The efforts outlined thus far to improve production efficiency and yields need to be complemented by demand considerations. To some extent, addi- tional production may be expected to meet additional demand, projected on the basis of growth in population and incomes domestically and abroad. A rough order of magnitude level projection of annual expansion in exports of the existing major non-coffee commodities is about 3% for the rest of this decade, at the prevailing real exchange rate. A similar increase in domestic demand may also be projected as a lower-bound on the basis of a 4%-5% increase in total incomes over the same period. In addition, some growth in output may be absorbed by "pent-up" demand that may be implied in the increase in the terms of trade for agricultural commodities over the last decade as shown in Table S (see Table VIII also). Finally, the types of policy discussed earlier to augment production efficiency and yields of inputs may lead to some lowering in the real prices of agricultural commodities, thereby providing some further impetus to demand. In particular, improvements in marketing and distribution touched upon in Section II would be important sources of equilibrating aggregate supply and demand in agriculture. Table 5: AGRICULTURAL TERMS OF TRADE (1970=100) Preliminary estimate 1965 1970 1975 1980 1981 National Accounts Price Deflator a/ Agriculture 64.3 100.0 257.0 719.3 861.0 Non-agriculture 60.6 100.0 228.8 682.6 850.7 Terms of Trade 106.1 100.0 112.2 105.4 101.2 Wholesale Price Index b/ Agriculture 68.3 100.0 333.4 1,101.4 1,357.2 Non-agriculture 61.6 100.0 262.9 761.4 955.0 Terms of Trade 110.9 100.0 126.8 144.7 142.1 a/ At market price. b/ Non-agriculture wholesale index includes price variations in processed goods after 1970. Source: Banco de la Republica. 3.2 Notwithstanding the above factors, aggregate demand is, and can con- tinue to be, an important constraint to rapid growth. In particular, non- coffee demand will need to rise faster than implied in para. 3.1, if it were  - 20 - also to offset the slump in coffee demand. Production incentives ull nee to be stimulated to higher levels than currently prevalent if significantly nore than a 3% annual production growth in agriculture were to be sustained; The first and most essential avenue to achieve a greater demand lift would be to pull the economy out of its doldrums and attain a big push in overal. gr h A number of measures, such as greater construction activitices wfLWh bute to an economic upswing, will be discussed in the forthcoming economic report. Agricultural and rural development activities can also make a signi- ficant contribution: minor irrigation and drainage--discussed in Section II-- are examples of rural construction activities with the potential of providing a quick impact on incomes and demand. Other "input" policires coveTaJ Chapter II can also indirectly boost demand, through their sa_Iur-c zi yr c economic growth. In general, quick disbursements under existing external loans for productive investment and rural development in agriculture may be expected to contribute not only to raising aggregate supply in the long rLn, but also to stimulating aggregate demand in the short-run. Future investment opt7.ons are further discussed in Chapter V. 3.3 In addition to direct efforts to stimulate growth. competitiveness of farm production can also be affected by price policies and trade policies. External demand for Colombian products can be influenced by altering exchange rate and commercial policies; with favorable policies growth in non-coffee exports could be raised beyond the lower-bound 3% envisaged in para. 3.1. Profitability of farm production is also affected by output prices and input prices, and there is a varying balance between influencirg the product prices and the input prices as possible means to improve agriculture's competitive- ness, as reviewed subsequently. 3.4 General features characterizing broad product groups in Colombia are worth noting at the outset. Price interventions for inputs affect all crops according to the intensity of input use. Output price policies and trade policies on the other hand are for the most part market determined, and they differ systematically across product groups. Four commodity groups may be dis- tinguished. A first group consists of non-perishable food crops, such as maize, wheat and beans, as well as oilseeds, which are produced predominantly for the domestic market, and sometimes supplemented by importation (parti- cularly wheat and barley). These crops do not face large seasonal price varia- tions, but do experience substantial year-to-year and long-term price changes. Government policy seeks to support farmgate prices by providing guaranteed prices. In addition, since these are importables, import tariffs provide varying degrees of protection to domestic production. A second group is composed of perishable crops, such as fruits and vegetables, also produced mostly for the domestic market. While seasonal price variations are large, the Government does not attempt to support the prices for these commodities, but it sets heavy trade restrictions. Bananas and flowers are major exceptions that are produced primarily for the export markets. A third category is export crops such as cotton, sugar, beef and rice, which are also produced for the domestic market. Given the wide annual price variations in the world market, domestic prices also fluctuate significantly from year to year, although domes- tic price policies and exchange rate and export subsidy policies affect them. Within the export crops, direct price support is provided only for rice. Fourth, coffee, the major export item represents a special case. It faces wide  - 21 - price swings in the world market, and receives a guaranteed price and is also subjected to export taxes. B. Output Prices 3.5 Government intervention in the domestic pricing of agricultural com- modities has been less significant in Colombia than in many other countries. While support prices are provided by IDEMA for several non-perishable food crops (rice, wheat, maize, barley, beans, sorghum, soybeans and sesame), the support prices have generally been set close to domestic market prices. Partly as a result, and partly also owing to financial constraints of the institution, the quantities purchased by IDEMA have been small -- about 10% of the rice crop in 1981, and far less for the others. The support prices for these crops are also supposed to take into account, at least in principle, changing farm pro- duction costs--an issue that needs further study. Domestic pricing mechanisms of the export crops vary. Coffee has a sophisticated guaranteed price scheme based on international prices, specific volume taxes and ad valorem taxes. Cotton and banana have been left to bargaining procedures between domestic pro- ducers and domestic manufacturers and traders; and sugar and milk follow price indexation systems. 3.6 A central issue in domestic price policy involves the relative price of food crops which are predominantly non-traded, and export crops. Some observers argue that in the face of rising food prices and an unstable world market situation for food crops, the first priority should be to ensure adequate food production at home by shifting relative prices in their favor. An opposing view maintains that existing policies already tilt relative prices in favor of the predominantly non-traded products at the cost of exports. Specifically, tariffs and import restrictions on a number of crops serve as de facto export taxes, as further elaborated in Section III D. Price Supports 3.7 If the first view (para. 3.6) were to be supported by policy, given the high domestic prices relative to border prices for many of the food crops, higher degrees of protection from imports through tariffs or quantitative restrictions, with or without greater price support efforts by IDEMA would be called for. An increase in the support price to be effective at the existing rate of protection will involve additional purchases by IDEMA at the support price, which in all likelihood, will then have to be sold domestically at a subsidy. For crops with prices already exceeding international price levels, higher support prices (in real terms) would not be justified on economic grounds. The same argument holds against higher rates of protection also. Wheat, maize, sorghum, soya and barley are examples of crops where higher price supports, given the existing rates of protection, would not be cost-efficient. There are thus serious limits to proposals for improving the relative prices of non-traded commodities vis-a-vis the export crops. On the other hand, a recent analysis (see Chapter III D) recommends an improvement in the relative price of exports, through lowering the protection to the food crops or through a faster rate of exchange rate depreciation, or a combination of the two.  - 22 - 3.8 Individual circumstances of crops receiving price supports vary sub- stantially. In the case of rice, at current levels of productivity and domes- tic prices, Colombia would be competitive in world markets. At its existing suopo-rt price which is close to the border price, rice is also presently in excess supply. A.ccess to export markets, however, remains difficult in the sIort run; for the medium term3 a modest scope for export expansion is indi- cated by current world demand projections. To realize this potential, an export strategy must be firmed up. Export possibilities would seem to depend more on relaxing marketing constraints than on the provision of higher support prices. 3.9 In contrast tco rice9 Colombia has no comparative advantage in wheat and its domestic pric"e is well above the border price. The production of wheats despite high protection levels, has dramatically decreased since the F_ 480 import program (now discontinued) was initiated in the mid-1960s. Although the production impact of price support has not been significant, other factors have affected the setting of support prices for wheat. Concentrated in the southern highlands (Narino) which face few development alternatives, wheat has been supported miainly for income distribution and social considerations. FurtherEore. the cost of price support is more than offset by the revenue from total wheat sales. Whneat import is the main source of domestic consumption, and IDEMLA uo to recently had an import monopoly, and was gaining revenue from a sub3tantial domestic-border price differential. The net result of price supports and import restrictions has been positive for wheat farmers and for IDEMA's revenues, but negative for consumers. An analysis needs to be carried out on the most cost-effective way to balance these effects. 3.10 TLhe maize and sorghum policies are interrelated because these two products are animal feed substitutes with strong cross-price elasticities in supply anddemand. Yet maize, unlike sorghum, is also a major staple, and is the most geographically widespread crop in Colombia. Thus, maize price support policy directed to help small-scale producers of maize as a food crop, has, in the past, benefited the large-scale producers of corn for feed also. Maize production, however2 has not responded to the price support for a variety of reasons, such as inadequate technological back-up and widespread problems of theft of the product. The demand for sorghum and its price have been pushed up as a substitute for the high priced maize. The high growth rate of sorghum s,.roduction in the 1970s was probably an indirect result of the price support m-ize. High product prices for maize and sorghum on the other hand hurt -cat'tle. poultry and pig industries, reducing their competitiveness and necessitating their protection.. High yields are achievable for maize and vorghum in the medium-term provided that technological improvements and cost e~:'ciency are promoted. In light of these factors, it would seem appropriate -o increasingly phase out price supports for these crops, and, at the same J:Lme2 assist in the adoption of technological improvements. Price Stabilization: Year-to-Year and Seasonal ,. 11 Food Crops: External Instability0 Quite apart from the average Levei of orices. thei-r ar lations from year-to-year are major considerations affecting production and farm incomes, particularly for export crops facing gr-eat instability in world markets. The issue of whether and to what extent  - 23 - domestic prices should be insulated from external instability needs to be addressed. Sugar and coffee are examples of cases where domestic markets are, to a significant extent, cushioned from the impact of external price varia- tions. Cotton, on the other hand, is exposed to the full force of the world market. A conclusion of some observers, worthy of further investigation, is that the wide price fluctuations in the case of cotton have imposed a variety of economic and social costs, outweighing the cost that might have been incurred from some degree of price stabilization efforts. A price stabiliza- tion mechanism recently proposed for cotton would let the domestic price of the fiber fluctuate according to international price movements within a range defined on the basis of minimum and maximum income levels to the cotton growers. The scheme would involve a stabilization fund which is operated on the basis of export margins and export subsidies implied by the differential between international prices and domestic price targets. Such proposals, however, raise serious issues concerning the degree of desirable government intervention. In any event, in view of the misuse and mistanagement such schemes can potentially involve, great care should be taken in effecting policy changes in this area. 3.12 Food Crops: Domestic Instability. The historical fear of periodic food shortages and/or exorbitantly high consumer prices has led Colombian political leaders to place great emphasis on maintaining government-controlled buffer stocks, particularly for the non-perishable food crops. Private sector firms argue that the management of these stocks has reflected little under- standing of the storage, interest and other carrying costs required to hold products from one harvest to the next. IDEMA has been accused of disrupting normal markets with untimely release of stocks and flattening out normal seasonal price patterns. The fact that virtually all cereal storage is per- formed either by IDEMA or processors suggests that farmers and assemblers have had little economic incentive to store commodities. 3.13 IDEMA's information on stocks held by processing firms is often inaccurate if not deliberately distorted by the private firms in an effort to achieve economic advantage. Similarly, private firms lack information on IDEMA stocks. Consequently, most market participants have inaccurate information on commodity stocks. A similar weakness exists with respect to production fore- casts. Since neither IDEMA nor private firms have reasonably accurate informa- tion on supplies, it is not surprising that periodic--real, imagined or deliberately manipulated--market gluts and shortages produce price instabil- ity. It is also easy to see why IDEMA's efforts to alleviate that instability often prove counterproductive. The often made assertion that IDEMA's imports have been untimely and sometimes disruptive to the market corroborates this conclusion. 3.14 IDEMA is expected to be self-financing. But it is also asked to buy at guaranteed (sometimes above market) prices and to sell at non-economical prices in order to perform its price stabilization objectives. The Institute's management is therefore regularly faced with a tremendous financial dilemma. In reality, the Institute has not been self-financing. Management has been forced to accumulate debt, and the easiest way to do that has been through loans on commodity imports. Foreign banks extend letters of credit financing for imports and as payments come due, IDEMA must determine if its financial condition permits repayment. If not, it simply requests the loans to be rolled  - 24 over. Banks nave been more than happy to do so as long as IDEMA pays the interest due. In 'hat manner, 1DEM4A has accumulated a short-term debt currently estimated at OTS$160 million. Recommendations 3.15 The Government must decide what role it expects IDEMA to play. First, the price support policy issues discussed in paragraphs 3.7 to 3.10 must be addressed by the Government0 Next, the Government must determine precisely what degree and type of market price stabilization will be pursued. The most reasonable objective would be to seek to manage imports and domestic buffer stocks inl such a way as to prevent price departures of more than 5% to 10% from an economically justi-ied seasonal pattern. In any case, IDEMA's management needs to clearly specify its st-abilization objectives, then redesign its procedures to efficiently achieve those objectives. Finally, the Government must decide whether, in light of the role it expects IDEMA to play, the Institute can be self-financing. 3.16 It is recommended that a systematic study of these issues be com- pleted in order to lay out the various alternatives and evaluate each (see para. 5a14). That study would be immensely helpful to policy officials in reaching informed decisions on these critical issues. It is also recommended that the Government of Colombia develop and implement a program to provide accurate public information on total existing (IDEMA plus private) stocks. A scientific crop forecasting program should also be put in place, and supply information should be widely disseminated to IDEMA, private market participants and farmers, C. Input Pricing: Fertilizer 3.17 Fertilizer, seeds, insecticides and other "modern inputs" represent 20% to 35% of farm production costs, while machinery constitutes another 25% to 30% for a number of major crops. 24/ Even though the Colombian farmer uses fertilizer less intensively, the expenditure share of this input in the Colombian farm budget is higher than in the US because of the higher unit farm price in Colombia. A great many of the inputs in question are imported and consequently, a good part of the farm budget--estimated to range from 20% to 40%--is attributable to import costs for farm inputs. Thus, both tariff policy and domestic pricing policy are relevant if input costs to farmers are to be lowered. 3.18 While the high costs of the above inputs explain a significant part of the high cost of Colombian agriculture, the rate of increase in their prices (200% to 230% between 1975 and 1981) has not been out of line with that of other inputs, such as land and labor, or with that of output prices. Never- theless, the potential to lower the prices of the former inputs, which in turn could slow down price escalation of the products, is significant. 24/ See Sarmiento, op. cit. p. 207.  - 25 - 3.19 The Government intervenes in the pricing of domestically produced and imported fertilizer and all producers and distributors must be registered with ICA. Fertilizer prices at the domestic factory are controlled by the Ministry of Agriculture, while imported fertilizer, constituting roughly 75% of consump- tion, is subject to various duties and taxes, and, in some cases, to prior licensing; in all cases, imports are controlled by ICA. Government interven- tion seeks to both protect the domestic fertilizer industry and keep farm fertilizer prices low, but, by and large, the oligopolistic fertilizer and port industries prevail over the agricultural producers, resulting in a transfer of funds from the agriculture sector to the industrial and transport sectors. 3.20 Although import duties per se are not high, 25/ the impact of various additional charges 26/ is sizable, ranging from 30% to 69% of the FOB price of fertilizer imports, as shown below. Table 6: STRUCTURE OF FERTILIZER IMPORT COST, 1981 (percentage of FOB price) Freight and Tariff and Port Charges Total Insurance Other Taxes and Demurrage Incidence Urea 17 10 5 30 Ammonia 25 10 5 39 Diammonium Phosphate 13 9 5 26 TSP: Industrial Importers 32 15 5 52 Other Importers 32 15 23 69 Source: Ministry of Agriculture. Non-industry importers of fertilizers pay higher port fees to COLPUERTOS than the fertilizer industry, implying an additional source of protection to the domestic industry. 3.21 In 1981 the Colombian farmer was estimated to pay more than two times world market prices for fertilizer. Only about 20% of this price differential, however, was due to "taxation" of the sort discussed above, with remaining 25/ Most imports such as urea, ammonium sulfate, phosphates and potassium chloride are subject to a 1% import tariff and to prior licensing, in most cases. Mixed fertilizers, most of which are also domestically produced, are normally protected through prior licensing and tariffs varying from 1% to 15%, depending upon the existence of domestic production. 26/ Domestic prices reflect the cost of the Proexpo tax (5% of CIF), Fondo Cafetero tax (1.5% of CIF), Consular tax (1% of FOB) as well as port charges and demurrage.  - 26 - differences arising from transport, marketingi storage and financial costs. Marketing margins are generally competitive, 7s/ while internal transport costs are high compared to other countries. Colombia relies mainly on high priced road transport of bagged fertilizer in contrast to other countries (such as Brazil and Mexico) which use rail transport with bulk handling. 3.22 The effective protection to industry is higher than the 20% implied above. In particular, inputs used by industry are exempt from port taxes and face lower taxes than do finished products, which, in addition, are also subject to import restrictions (prior licensing). Primarily as a result of the above, the crop/urea price ratio for many crops 28/ in Colombia is much smaller than the corresponding border price ratios. 29/ Recommendations 3.23 As means to progressively lower fertilizer costs to farmers, the following proposals need to be evaluated and policy improvements effected, some of which clearly involve difficult changes from the current situation: - investigate the possibility of further exempting agricultural inputs from import duties, the PROEXPO, Fondo Cafetero and consular taxes; - seek to lower port tariffs in real terms; 30/ furthermore, if port tariffs were made cost-based, the currently higher import costs for agriculture would be reduced; - investigate measures to reduce internal transport costs. Though truck transport is generally expensive in Colombia (possibly because of unduly restrictive entry and low capacity utilization), handling and transporting fertilizer in bulk could substantially reduce transport costs. The possibility of using port facilities increasingly in Buenaventura on the Pacific, which is closer to certain key production areas, needs to be explored; 27/ The distribution channels -- pertaining to Caja Agraria, the National Federation of Colombian Coffee Growers (FEDERACAFE), the National Rice Producers' Federation (FEDEARROZ), the National Cotton Producers' Federation (FEDERALGODON) and others -- appear to be quite competitive. 28/ The effective price support for cotton, however, seems to have offset the tax on fertilizer. 29/ 1974 was an exception, when the exceptionally high world fertilizer prices were not passed on fully to the Colombian farmers. 30/ In order to progressively achieve a reduction in tariffs, the enforcement of existing, or a negotiation of more realistic, labor wage contracts with the dockers' union would appear to be necessary. Considering the present situation in the ports, this will undoubtedly require time and patience.  - 27 - - lower distribution costs; options should be examined to locate blending facilities closer to the agricultural producers; the direct use on-farm of basic fertilizers rather than general low- concentration formulas as well as related aspects of bulk versus bag handling, also require a more detailed investigation; and - more information and analysis are needed on the present level of protection and subsidy to the industry, its efficiency, and pricing policies (see para. 5.15). If industry requires protection, alter- native means other than high output prices, such as achievement of lower input costs, should be explored. 3.24 As a follow-up, OPSA's fertilizer group could be strengthened to take the lead in preparing working documents and policy papers. This group, with the participation of other ministries in some form,would also need to monitor fertilizer studies, including: - the ongoing studies of the new phosphate and urea/ammonia plants, including the aspects of distribution of fertilizers; the definition of cost-based port tariffs and further analyses of transport costs; and an assessment of the efficiency of fertilizer use and of the performance of ICA in promoting better input use, as is envisaged as part of a study in the proposed Research and Extension project. D. Trade Policy 3.25 The contribution to growth of an outward-looking trade strategy is brought out by the positive results obtained in the first half of the 1970s from a partial trade liberalization. Since 1967 exchange rates were unified, a crawling peg established, and a variety of export incentives--Tax Credit Certi- ficate (CAT), Export Promotion Fund (PROEXPO), Plan Vallejo--provided. Minor exports grew (in current US dollars) at an annual rate of 26% from 1970 to 1975, in contrast to lower growth rates in previous and later time periods. A historical analysis 31/ indicates that only a part of the 1967-74 performance was accounted for by exogenous factors such as high world prices, with a significant part of the response being related to inducements originating in domestic policy. Sharp increases in exports for a number of commodities-- cotton, beef, sugar, bananas, flowers--were accompanied by a similar production expansion, suggesting an export-driven growth process. By and large, export crops (including coffee) have experienced significantly greater yield improve- ments than importable cereals and oilseeds, in spite of the tariff protection that the latter receive. 31/ C. F. Diaz-Alejandro, Foreign Trade Regimes and Economic Development: Colombia, NBER, Colombia University Press, 1976.  - 28 - 3.26 The 1967-74 experience notwithstanding, the general long-term tenden- cy, particularly prior to 1967 and to a lesser extent since 1975, is one of in- adequate incentives for exports vis-a-vis non-traded agricultural commodities and industrial categories. Exports have faced disincentives as export allot- ments for major exportable food crops other than coffee are assigned on the basis of verified surpluses at a stage when most production decisions have already been made. Furthermore, import restrictions (see below) act as an implicit tax on exports. 32/ 3.27 Protection to domestic production through trade policy is currently provided in at least four ways: (i) tariffs and other import duties; (ii) quantitative restrictions on imports; (iii) foreign exchange controls; and (iv) movements in the real exchange rate. In addition, price supports in the domestic market represent a source of protection. A recent analysis 33/ shows that nominal tariffs themselves have amounted to an unweighted average of about 26% for the economy with a coefficient of variation of 68%. Even in sectors where the nominal tariffs per se are low, additional taxes and fees--such as, a consular tax (1% of f.o.b. price), the PROEXPO tax (5% of c.i.f. price), a coffee fund tax (1.5% of c.i.f. price), port charges and opportunity cost of prior deposits--add significantly to import costs. Recently there has been an increase in tariffs by roughly 20%, some of which are intended to finance higher export subsidies. In addition to the price controls, an important source of protection lies in quantitative restrictions enforced through a system of import licensing. The wide variations in the domestic prices of many agricultural products compared to international prices, noted earlier in this paper, are more often the result of quantitative import restrictions provided by IDEMA than of price controls. These factors have had a significant effect on lowering the price of exportable relative to the predominantly non-traded agricultural products. 3.28 Furthermore, the average real exchange rate (i.e., the Colombian nominal exchange rate weighted by the ratio of Colombian and US -- or, alterna- tively, international -- price indices) for all exports has deteriorated by over 20% since 1974 according to our calculations based on international finan- cial statistics (IFS) data. The real effective exchange rate (REER), i.e., including export subsidies, has declined even further according to various estimates. While average estimates for the economy as a whole place the fall in the REER between 20% and 28% since the mid-1970s, some estimates of the decline relevant for agricultural commodities alone are twice as much. In 1982, however, CAT (export subsidy) has been increased for agricultural exports, as shown in Table 7, thereby slightly raising the overall REER. On the other hand, the financing of the higher subsidies has involved higher 32/ It has been estimated that a 10% import tariff in Colombia has meant a 9% lower price of exported goods relative to non-traded goods. See J. Garcia Garcia, The Effects of Exchange Rates and Commercial Policy on Agricultural Incentives in Colombia: 1952-1978, IFPRI, June 1981. 33/ See Echeverri, G. G., "Estructura de la Proteccion Arancelaria y para - Arancelaria en Colombia despues de las Reformas de 1979," Revista de Planeacion y Desarrollo, Vol. XI, Number 2, May-August, 1979.  - 29 - import tariffs. The adequacy and efficiency of these higher export incentives need to be evaluated. Table 7: EVOLUTION OF THE EXPORT SUBSIDY (CAT), 1967-82 a/ (percentage of the f.o.b. value) 1967 1976 1981 1982 Agriculture 15.00 3.78 4.89 12.61 (0.00) (9.18) (6.86) (2.81) Industry 15.00 3.24 5.73 6.99 (0.00) (11.88) (9.66) (10.56) Textile 15.00 7.93 11.62 15.00 (0.00) (0.93) (0.95) (0.00) Average 15.00 3.94 6.88 10.63 (0.00) (9.56) (6.59) (5.80) Real effective exchange rate - 100.00 81.11 82.39 b/ a/ Average level; coefficients of variation are given in parentheses. b/ As of September. Source: Coyuntura Economica, Vol. XII No. 3, October 1982. 3.29 A restoration of REER for agricultural exports to a level more in line with that of the mid-1970s would be one component of a package of incen- tives to speed up agricultural growth. In the last two years, the Peso has been devalued in order to account for the differential between domestic and U.S. inflation. To raise the REER further, additional exchange depreciation can be implemented or a set of increased export incentives can be provided. A depreciation of the Peso at a rate of about 25%, ceteris paribus, could restore the REER to the mid-1970s level in three years. Alternatively, the existing rate of depreciation of the Peso can be maintained (about 20%), while bringing down the domestic rate of inflation from the current rate of about 25% to about 20% and eventually to lower levels. The recent economic mission concluded that, at present, a combination of efforts to lower inflation (significantly below the recent 25% annual average) and at the same time to depreciate the Peso at a slightly faster pace should be pursued. This issue deserves special attention, particularly in view of its impact on profit margins for agricul- tural exports including livestock. As proposed in para. 5.13, a study of trade policies and the profitability of domestic sales in comparison with exports is warranted.  - 30 - 3.30 Efforts can also be mounted to lower the domestic costs of agricul- tural products, through yield improvements or through cost reduction for inputs or both. Investments to raise yields and to lower production costs, where cost-efficient, may be considered to be "first-best solutions. The scope for such investments has been mentioned in Section II; however, under some options (such as research), the results are likely to accrue only in the medium to long term. Accelerated depreciation of the Peso or higher export incentives on the other hand provide immediate incentives, but their possible indirect effect on inflation also has to be considered. An exchange rate depreciation provides a generalized incentive, which can also be achieved by a uniform export subsidy. The Government at present has raised the export subsidy; in order to obtain the most impact from this policy, it is essential to maintain uniformity in the rate of subsidy--except for special cases such as coffee (see Chapter III E). 3.31 Furthermore, export subsidies should be viewed as short term measures and not as substitutes for efforts to improve yields and lower costs, or as a means to offset real declines in international demand. In recent years, the deceleration in Venezuela's economic growth has had a significant impact on Colombia's exports. Our current projections -- assuming a rate of exchange depreciation to fully offset differentials between projected domestic and international inflation rates -- present a mixed picture. Cotton and sugar are expected to gradually recover from their exceptionally low 1982 levels, while bananas, flowers and beef continue a fairly steady growth rate. Our current projections assume a combined annual export growth for cotton, sugar, banana, cattle and beef from Colombia in the order of less than 3% in constant US dollars. The level of additional export subsidies should be reviewed in light of new evidence on the impact on exports over and above such levels anticipated at present. In the meantime, policies to lower domestic inflation and raise agricultural yields should be pursued. E. The Special Case of Coffee Prices, Production and Stocks 3.32 Colombia's coffee economy has been driven by the substantial changes in the crop's world demand and supply. World production has fluctuated widely in the past, mainly resulting from erratic movements in Brazil's output, which has been 33% of world production on average, but with a year-to-year average change of 39% between 1961 and 1981. Combined with a low price elasticity of demand -- estimated by IBRD to be about 0.23 for the long term -- world prices have fluctuated widely. Colombia has produced a sharp and immediate response in planting of coffee to these price fluctuations, with a typical lag of coffee output of about three years. As a result of a frost, Brazilian production fell from 23 million bags in 1975/76 to 9.3 million bags in 1976/77 and coffee prices tripled in real terms between 1976 and 1979. In response, Colombian production rose to about 13 million bags in 1980/81, up from 7.8 million in 1975/76 as shown below (see Table X also); the 1981/82 output is estimated to have declined by about 3.5% from the previous year, mainly on account of adverse weather.  - 31 - Table 8: SUPPLY AND DISTRIBUTION OF EXPORT GRADE GREEN COFFEE (Thousands of 60-kg bags) Period Averages a/ 1950-65 1965-70 1970-75 1975-80 1980-81 1981-82 Production 7,876 7,910 7,508 10,319 13,037 13,728 Domestic Consumption 1,388 1,211 1,340 1,574 1,480 1,480 Exports 5,949 6,300 6,805 8,710 9,030 9,120 Closing Stocks b/ 2,166 5,249 3,936 3,149 5,099 8,227 a/ The coffee year runs from October to September. bI In the case of the periods, these are averages of stock levels at the end of September. Source: FEDERACAFE 3.33 The degree of domestic production response to world price changes has been dampened in the past through an elaborate set of coffee taxes, imposed at the export and domestic marketing stages. While external prices increased by 143% in constant US dollars between 1974 and 1977, the average domestic price rose by only 66% in constant terms--providing some measure of domestic price stabilization (Table XI). From 1978 onward, with the confirmed downturn in external prices, producer prices were allowed to increase at a much lower rate than domestic inflation: between 1978 and 1982, they only increased from Col$7,200 to Col$11,050 per 125 kg, which has amounted to a decrease in real terms of about 25%. Furthermore, the extension of credit and other inputs for coffee has been restricted. The implied disincentive to domestic production is reported to have had some negative effect on plantings; any further impact needs to be assessed in view of the next year's crop. 3.34 In the past the cost to FEDERACAFE of domestic price stabilization during periods of low world prices was more than mitigated by the price increases in later periods. An indirect measure of the effectiveness of price stabilization is stock changes, with continuous additions to yearly stocks implying that domestic prices are too high. While Colombian stocks have changed widely from year to year, a five-year moving average of stock changes has remained below 500,000 60-kg bags until this year, implying that year- after-year stock build-up of any major proportion did not take place in the past. Furthermore, Colombia's share of world stock has historically been below its share in world exports; until the mid-1970s, the former was only about one- half of the latter. 3.35 More recently, while Colombia's share of world exports is controlled at about 14% under the International Coffee Agreement, its share of stocks has begun to climb and may already have exceeded the country's export share. At present, stocks are estimated to be over 8 million bags, which could be over  - 32 - 15% of the world stocks. In the event of a sharp increase in world demand, the built-up stocks could be put to use in the coming years. Nevertheless, no major pick-up in world demand is projected for the next five years or more, which implies the need for Colombia to scale down domestic production and stocks; this, however, is not a straightforward option (see below). 3.36 A restoration of export incentives to agriculture exports in general, as suggested in para. 3.27, should clearly exclude coffee, but should be directed towards coffee growers who produce other commodities. Export sub- sidies do not include coffee, but any improvement in the real exchange rate will need to be offset by an increase in the coffee tax. The most direct and least distortional means would be to raise the ad valorem tax on coffee exports. It may be necessary to raise this tax, not only to prevent increases in coffee production, but actually to effect a decline in the level of output. A recent decision to lower the ad valorem tax on coffee exports by 3 percentage points from 12% needs to be evaluated in this light. On the other hand, the recent changes have also included an increase in the guaranteed price to coffee growers at a rate of only 10%, well below inflation, and a higher retention quota (from 35% to 40%) for FEDERACAFE, both of which are meant to be in the direction of discouraging more production and improving FEDERACAFE's finances. Coffee Diversification 3.37 The upshot of a policy to stabilize coffee production in line with world demand is its impact on the incomes of coffee growers, protection of which is a major objective of the Government. However, in light of the constraint placed by world demand on the level of domestic production, the cost of efforts to stabilize coffee growers' income has become a serious offsetting consideration. It is becoming increasingly apparent that income stabilization will be better met, at least in the long run, through stepped up coffee diver- sification than through price supports to coffee farmers. The large contribu- tion of coffee to past agricultural growth (para. 1.7) provides some measure of the needed diversification efforts if overall growth is to be maintained with less coffee participation. 3.38 Most of the coffee farmers devote less than half their total areas to coffee, utilizing the remaining acreage for other crops if profitable. This suggests a significant degree of substitutability of land between coffee and other crops and, hence, scope for coffee diversification. Parts of the coffee zones were reported food crop growing areas as well, which in the wake of the coffee boom turned into net importers of food. It is possible, however, that the more technologically advanced farms are more specialized in coffee activity and therefore hold less potential for diversification; on the other hand, it could be argued that the more progressive coffee entrepreneurs would be more capable of switching to non-coffee production when it becomes profitable. 3.39 Roughly 60% of coffee production which is under the high-yielding variety, caturra, is input-intensive in labor and fertilizer. Therefore, efforts to lower the fertilizer price (Chapter III C) is likely to augment the relative profitability of growing high yielding coffee, and offsetting measures may be needed. On the other hand, a lowering of coffee prices compared to those of other crops would reduce the demand for and hence the relative price  - 33 - of the inputs that are used relatively more intensively in coffee. This would mean a relatively lower income level for coffee labor, which is very inten- sively used in coffee production. Such an outcome would be avoided, if alter- native crops under coffee diversification, whose relative prices improve, are also at least as labor-intensive as coffee. Recommendations 3.40 The difficult issues concerning the income distribution effects of coffee policy need to be addressed anew with greater attention. The coffee diversification program, which has been successful to some extent so far, would need to be emphasized and adjusted in view of coffee prospects. The conditions under which the coffee grower would engage more rapidly in diversification activities need to be investigated, and particularly the profitability of substituting activities for coffee growing. Since marketing has proven to be a constraint in this program, it should be considered as an important component in coffee diversification.  - 34 - IV. INSTITUTIONAL CONSTRAINTS 4.1 The public sector institutions in Colombian agriculture have been decentralized to the point where there is almost no center of decision making left. Whether this has been by deliberate choice by successive administrations in the belief that, as one President put it, "Agriculture is too important in Colombia to leave it in the hands of a single ministry," or whether it has developed progressively out of the very dynamism of the agencies, is an interesting question, but we need to assess the deficiencies of the system and examine how they can be corrected. It is worth emphasizing in this context that a strong ministry is not necessarily needed and that the enviable record of Colombian agriculture has been achieved without the existence of a strong centralized ministry. Capacity to effect policy reforms to further promote agricultural entrepreneurship to coordinate policy and to improve cost-effec- tiveness ought to be the guiding principles in evaluating institutional reform, and not staff functions or staff numbers. 4.2 The decentralization policy has partly been responsible for shortcom- ings in several organizations, such as the overextended Caja Agraria, which not only deals ineffectively with agricultural credit but has also become the main agricultural input supplier, and has other functions as well; ICA,which combines research, extension and policing functions but has lost its reputation as an efficient research institution; and INCORA, which appears to be somewhat of an outdated institution kept alive for political and social reasons. Mean- while, the Ministry of Agriculture, which is de jure responsible for agricul- tural planning, policy and control, is de facto left with largely perfunctory activities or confronted with immediate issues that it has not had the time or capacity to investigate. It has a planning arm, the Agricultural Sector Plan- ning Office (OPSA), which has been described as the "fireman" of the Ministry, because of its last-minute interventions in crises situations. 4.3 Numerous and sometimes strong producers' associations such as the Colombian Farmers' Association (SAC), FEDERACAFE, FEDEGAN, FEDEARROZ, have evolved. They have been able to play, particularly during recent years, a key role in policy making of the sector, as well as in such activities as research, extension and input supply. FEDERACAFE, one of the oldest and strongest institutions in Colombia, has been largely responsible for the development of coffee and is presently involved in a full spectrum of economic activities ranging from banking (Banco Cafetero) to agronomic research (CENICAFE) and even to wholesale perishable marketing (COMERCAFE) and to many other functions. SAC has become a federation of the various agriculture and livestock associations and a focal point for policy analyses and discussions. FEDEGAN is also in the process of restructuring its regional offices and undertaking detailed studies of livestock. The other producers' associations have strengthened their professional staff with a view to improving their analytical capability. This increasing participation of the private farming sector in policymaking has made it possible for the so-called "concertation" process initiated about a year ago to result in a set of recommendations and elaborations of "indicative plans" for the maio. agricultural products. These institutional developments in the  - 35 - private sector should be encouraged and certainly what is needed least at this stage is a government bureaucracy that would stifle them. Nevertheless, there are policy functions which decentralized agencies or private sector organizations may not be interested in performing, and which are presently not being carried out adequately by the public sector either. Such functions include: - Research and extension. ICA's performance is being reassessed and the reorganization of ICA with the possible split up between the research and extension, and control functions is under consideration in the context of the preparation of a research and extension project. - Marketing. Several agencies deal with separate functions of marketing, but with no umbrella organization to assist in better dissemination of information, coordination and marketing develop- ment. - Policy planning, budgetary analysis, monitoring and evaluation. There is an urgent need for an agricultural census, J4/ including a livestock survey, in order to update and upgrade the overall information system of the sector. In cases where substantial data have already been generated elsewhere, the Ministry could closely coordinate with the relevant agencies. With respect to many issues which require policy guidance, such as the fertilizer question, the Ministry of Agriculture could take the lead but carry out the task in collaboration with other relevant ministries and DNP. Budgetary and investment analysis for the sector as a whole is currently lacking, 35/ and, in fact, only the IRDP and Coffee Diversifica- tion programs and some other externally financed projects, have been subjected to regular monitoring, often upon request of finan- cial institutions. Evaluation of projects or programs is almost non-existent. 4.4 Clearly there are a number of requisites for institutional improve- ments in the public sector. Some of these--such as the ability to attract, select and hold qualified technicians, lowering the rate of turnover in manage- ment--have been noted in the course of project work. In the meantime, private sector institutions (FEDERACAFE, FEDEGAN, FEDEARROZ) have increased their impact and effectiveness, and it would appear that they could and should increasingly serve as vehicles for developing future investment in agriculture. 34/ The last complete census was carried out in 1970-71. Since then an agricultural survey covering the coffee zones was prepared in 1980-81. 35/ An example: it has not been possible to obtain data on agricultural investment by the public sector as a whole over the last 10 years.  - 36 - V. DEVELOPMENT OBJECTIVES, POLICY ORIENTATION AND INVESTMENT STRATEGY A. Broad Goals and Key Sectoral Objectives 5.1 In the absence of a detailed analysis of the linkages in Colombian agriculture, no attempt is made in this paper to project likely growth scenarios. Some indications are, nevertheless, presented of the likely policy implications of pursuing certain broad goals and specific objectives under changing circumstances in the 1980s. Goals of development at present include: economic growth, stabilization, export promotion and import substitution, and employment generation, all of which could and should be promoted inter alia through agricultural and rural development. In meeting these goals, attention will have to be paid to key objectives or priority areas in the sector; (a) yield improvements for food crops as well as for export crops; (b) coffee diversification; (c) rural development; (d) watershed management and reforesta- tion; and (e) transport and marketing. Export Promotion 5.2 Assessments of coffee prospects suggest that the country's coffee exports -- determined by world supply and demand, and regulated by the Inter- national Coffee Agreement -- will not grow signi- ficantly in real terms through the 1980s -- unless supply shortages from other sources arise unexpec- tedly, 36/ or the International Coffee Agreement breaks down. This outlook has implications for coffee diversification (paras. 6.4, 6.5 and 6.15) not only to protect farmers' incomes, but also to sustain growth in exports. In the case of the major non-coffee products, export growth has been particularly slow in the last two or three years and the performance was marked with major diffi- culties--resulting from sharply reduced world demand (for example, in sugar and cotton), and from inadequate export incentives. Cotton, sugar and rice, in particular, will continue to face uncertain world market conditions. 5.3 The export projections in the following table (see Table XII for details) assume a continuation of recent trends in domestic policies; in parti- cular, it is assumed that the exchange rate will be adjusted only to account for future projected differentials between domestic and U.S. inflation rates, and that no major new export subsidies will be initiated. The resulting scenario represents a "base line" forecast, which can be improved upon through policy changes. Only a very modest growth for the major non-coffee products in the 1980s is projected. The more rapid projected growth in total goods exports is expected to be obtained from coal, nickel and petroleum derivatives. Significantly larger agricultural exports will be predicated on the recovery of the world economy, stronger export incentives and vigorous export promotion drive (paras. 5.8 and 5.13). 36/ In view of the replanting strategy adopted by Brazil, production variability from frost is expected to be drastically reduced.  - 37 - Table 9: AGRICULTURAL EXPORT PROJECTIONS, 1980-90 (millions of US Dollars) 1980 /a 1981 /a 1985 /b 1990 /b Major Agricultural Products Coffee 2,260.0 1,530.6 1,872.7 2,703.0 Other /c 379.0 363.5 431.6 697.3 Total 2,639.0 1,894.1 2,304.3 3,400.3 Total (1970 dollars) 691.5 602.4 605.5 663.7 All goods /d 4,401.0 3,366.0 4,935.2 11,163.2 All goods Id (1970 dollars) 1,202.0 1,021.6 1,138.7 1,669.5 /a Estimate; the differences from Table 1 are from balance of payment adjustments included here. /b Projection. 7W Cotton, sugar, banana and cattle and beef. Id Including minor agricultural products not mentioned in footnote a. Source: DANE, Banco de la Republica, economic mission estimates and projections. Food Production 5.4 With the modern sector increasingly taking care of certain products such as rice and oilseeds, the more traditional farmers are projected to con- tinue to contribute a dominant share of the food basket, particularly basic staples such as corn, potato, cassava, beans and panela, and vegetable and fruit, for which demand is expected to continue to grow at a fast pace. Increased production of basic staples would hinge critically upon continuing successful rural development programs of the IRDP-type with their emphasis on adoption of technological packages. Incremental production of vegetables and fruits could also be generated by the IRDP projects; in addition the coffee diversification program with its valuable experience in marketing activities could also be a useful instrument. Exchange rate policies also clearly affect food crops, which are predominantly produced for the domestic market at present. Raising Rural Employment and Income 5.5 For the coffee farmers, coffee will continue to provide the main source of employment and income, but increased reliance will need to be placed on diversification activities in view of coffee prospects. For the other small--scale farmers rural development activities, such as those under IRDP, will continue to constitute an important vehicle for development. The salutary impact on rural real wages of past export expansion is of particular signifi- cance in diversification program. Import-substitute food commodities, on the other hand, in many instances are also well-suited for growing in many of the  - 38 - coffee zones. Agrarian reform and land redistribution do not seem critical, since the rural population, which decreased in the past from out-migration, presently appears to be stabilized. This also explains why new settlement projects are not given high priority in this document, although consolidation of existing settlements, in the form of integrated rural development, or other schemes, should continue to receive support, particularly in insecure areas of the country. Regional development and integration and the establishment of greater security and well-being are important goals of rural development. At the same time, depending on the success of industrialization and promotion of manufactured exports, non-agricultural activities may be expected to increas- ingly draw rural population, which might further decrease even in absolute terms. In this context, assisting in greater rural-urban mobility could be a sound approach. 37/ B. Development Strategy and Policy Implications Overall Investment and Allocation 5.6 During the 1970s the share of agriculture in the Government's national investment declined by an annual rate of 7% in real terms and this share now stands at about 8%, well below the sectoral share in GDP. 38/ Even allowing for a better incremental capital-output ratio in agriculture than in the rest of the economy, a greater share of agriculture in development expendi- tures would be consistent with the country's development goals. 5.7 In the allocation of investment, emphasis should be placed on raising yields and lowering production costs of non-coffee products (para. 5.11). Given the identified potential to increase marketing efficiency, marketing pro- jects would also constitute a priority area. In support of input policies, research and extension need to be geared up to generate and disseminate techno- logical advances. Where proven cost-efficient, projects to promote additional domestic production of inputs and their better distribution should also be pursued. Trade Policy 5.8 For coffee, in addition to maximizing export sales within the current quotas, special attention needs to be given to lowering the costs of storage and carryover of stocks. Management of input prices and output taxes will be crucial to contain coffee production and acceleratingdiversification. In the case of non-coffee products such as cotton, sugar and rice, a continuous 37/ This issue sould be analyzed as part of the country's urban strategy for the 1980s; an urban sector paper for Colombia is scheduled to be prepared by the Bank in 1983, which would address this question. 38/ Data for the public sector as a whole, separating out current and developmental expenditures, are not readily available.  - 39 - scrutiny of exchange rate movements and implications for improving the real effective rate will be needed in order to ensure competitiveness in the export market and to help generate more foreign exchange (para. 5.13). Price Support and Input Subsidy 5.9 Import and price support policies will continue to have a major impact on the development of importables (corn, wheat, sorghum and oilseeds) for which Colombia has not shown a comparative advantage so far. Because of the many policy effects on these crops, a particular policy mix will have to be reviewed and recommended for each commodity separately, paying close attention to interrelationships. For instance, the maize policy is especially complex in view of (a) the different uses of corn as foodstuffs, feedstuffs, or source of maize oil; (b) the different farming and technological systems; and (c) the partial substitutability of maize with sorghum (as feedstuff), wheat and rice (as foodstuff), and oilseeds (as source of oil). 5.10 A close look will be needed at price support policies from the points of view of price and income stabilization and of IDEMA finances. A study should provide operating guidelines for IDEMA in accordance with well-defined objectives (para. 5.14). At present, it would appear that higher support prices (in real terms) would not be a preferred option to improve profitability of food crops. It would be more desirable to seek lower input costs, and the avenue of lowering the domestic costs of imported inputs should be explored (para. 5.15). C. A Summary List of Areas for Investment 5.11 The country's development goals, and its objectives and strategy in agriculture suggest some priority areas for investment. These areas, involving the public and private sectors, are summarized below, reserving discussions of project details, needed actions and the Bank role for other documents: (a) efforts to raise the yields and competitiveness of existing and potential export crops and of selected food crops. Such schemes include: (i) water control and land development, such as irrigation rehabilitation schemes; (ii) export promotion for crops such as rice horticultural products and fruits; (iii) import substitution where Colombia's comparative advantages is well established or can be regained through research efforts; (iv) research and extension covering selected export crops and food products; and (v) means to strengthen marketing and distribution.  - 40 - (b) coffee diversification with its marketing and agroindustrial components; (c) rural development and area development; (d) watershed management and reforestation, which lead to conserva- tion of natural resources; and (e) industrial investment, where justified on sound economic grounds, decrease input costs (example: fertilizer production). D. Sector Work 5.12 Our current assessment identifies the following five areas where studies would be particularly needed to clarify options and to help in decision-making and in identifying new areas for investment. Arrangements to carry out these studies are discussed in various other recent memoranda. Trade Policies and the Competitiveness of Exports 5.13 Policy alternatives for improving the competitiveness and profit- ability of agricultural exports (rice, cotton, flowers, bananas, beef, etc.) in world markets need to be examined. Export subsidies should be compared to an accelerated depreciation of the Peso, bringing out the impacts of these alter- natives on resource allocation and inflation. Protection of industrial goods, agricultural inputs and selected agricultural products need to be further reviewed to assess its effect on the relative prices of exports and on export competitiveness. Price Support, Marketing Funds and IDEMA Policies 5.14 For the IDEMA-supported crops, domestic production objectives need to be defined with a view to establishing if and to what extent support prices and import protection are needed; operational guidelines for IDEMA's purchases, sales, imports and stock levels should follow. The appropriate balance between price supports and input subsidies and the possible role for commodity market- ing funds need to be analyzed. The implications of the existing and proposed policies for IDEMA's finances are also yet to be adequately studied. Fertilizer Price and Use 5.15 This study would examine the various components of the farmgate price of fertilizer to determine where savings can be effected, paying special atten- tion to: taxes, port charges, transport and distribution costs; bulk transport versus bagging; changes in the location of blending plants. It should also present a cost-benefit analysis of domestic production versus importation of the input. A related study should examine the efficiency of fertilizer use for the various crops; the appropriateness of current levels applied, the composi- tion of the formulae, the advisability of direct application of concentrated products at the farm and of using foliar analysis to improve diagnostic of fertilizer requirements.  - 41 - Agricultural Credit and Interest Rates 5.16 In addition to a general review of credit allocation, the study should assess the performance of CAJA and INCORA in providing credit to small- scale farmers. It would examine: means to improve savings mobilization and the channelling of funds to the small-scale sector; the interest rate structure and the appropriateness of continuing subsidizing the medium- and large-scale farmers via FFAP funds; and the cost implications of this subsidy for the banking system. Finally, the study should look into the question of marketing credit and propose solutions to increase the funding and channelling of such funds. Incentives for Coffee Diversification 5.17 The importance of such a study stems inter alia from the number of farmers affected by coffee prospects and the economic and social implications. The work should seek to address: - the alternatives to coffee in traditional coffee zones, and the price relativities of coffee and other activities needed to encourage substitution; - the response of the caturra variety to varying levels of fertiliza- tion; supply elasticities with respect to input (mainly fertilizer) and output prices; the flexibility to manage coffee production by price and other instruments. - the macroeconomic implications of changes in coffee prospects and policy. January 31, 1983  - 42 - STATISTICAL APPENDIX  Tat le I (Dl BIA: GROSS CMSTS ZO PlFlJC-T AT 'ACraC MST BY SECTCR AT CONSTANT l'RhI;S, 1J6,, 1970-81 (mil I lons ot 1970 0olmoIan Pesos) Prel imlnary Estimate 1965 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Gross (b,estic Product at F.C. 90,351.4 119,796.9 126,721.8 136,743.5 147,178.0 156,707.5 163,399.2 170,226.5 178,325.7 1(4,817.9 203,664.3 211,929.9 217,228.2 Agriculture a/ 27,833.6 34,244.8 34,887.6 37,784.8 59,157.4 41,516.9 44,066.4 44,905.0 46,096.5 50,575.0 52,617.5 53,953.8 55,680.3 Mining 2,267.2 2,528.0 2,550.8 2,379.9 2,591.7 2,403.8 2,240.7 2,145.9 2,063.8 2,154.4 2,131.2 2,434.2 2,523.5 Minutfzturlng 15,389.5 20,976.7 22,778.8 24,933.4 27,828.2 29,657.2 30,030.7 32,037.7 33,396.8 36,289.2 37,891.0 38,372.5 37,988.8 Constructlon 3,526.3 6,530.0 6,859.6 6,993.9 7,839.2 8,142.4 7,795.9 6,686.2 7,067.0 7,334.9 7,255.3 7,936.2 8,706.0 n(luctricity, Gas and Water 1,163.7 1,787.9 1,960.0 2,226.7 2,473.3 2,615.1 2,753.4 3,067.7 3,138.4 3,391.0 3,742.1 4,031.4 4,140.3 TransizOrtation and CammunIcation 6,488.2 8,881.1 9,537.9 10,377.2 11,367.5 12,946.5 14,005.3 15,076.1 16,232.7 18,041.6 19,333.2 20,524.2 20,996.0 Trade hI 15,047.0 20,760.2 22,430.9 24,220.6 26,227.4 28,231 .8 29,487.8 31,698.2 33,724.4 37,795.1 38,799.7 40,335.6 40,835.8 Public kdninistration t Defen3e & 6,523.4 8,283.5 8,859.3 9,757.0 10,529.7 10,775.1 11,189.1 11,370.6 11.786.3 12,678.0 13,567.2 14,515.9 14,979.5 Otfher i3ranches d/ 12,113.5 15,804.7 16,856.9 18,070.0 19,163.6 20,418.7 21,749.9 23,239.1 24,829.8 26,558.7 28,347.1 29,822.1 31,578.0 a/ Inclk(Is fishing, hunting and forestry. bl COMp)seol of carrieros* hanking, finance an, Insuranm. c/ Equals Sovernrenrt servioes. d/ P sied of house rentals an1 personal services. Sixrce: Banco di la Re8publica.  - 44 - Table II COLOMBIA: AGRICULTURALa/ GROSS VALUE ADDED AT CONSTANT 1970 PRICES, 1950-81 (millions of 1970 Pesos) Year Crops Livestock Other Totala/ 1950 8,345.3 6,740.8 2,270.1 17,356.2 1951 9,400.8 5,850.4 1,944.3 17,195.5 1952 10,199.4 6,006.5 2,104.9 18,310.8 1953 10,328.9 5,983.0 1,987.0 18,298.9 1954 10,449.7 6,162.6 2,244.1 18,856.4 1955 10,286.6 6,904.6 2,274.5 19,465.7 1956 10,608.1 7,271.8 2,197.1 20,077.0 1957 11,407.7 7,592.0 2,246.5 21,246.2 1958 11,860.4 7,811.2 2,301.3 21,872.9 1959 12,693.4 7,966.9 2,216.1 22,876.4 1960 12,287.0 8,412.5 2,365.9 23,065.4 1961 12,772.0 8,592.4 2,615.2 23,979.6 1962 13,149.3 9,076.4 2,543.2 24,768.9 1963 12,867.7 9,748.5 2,414.1 25,030.3 1964 13,885.7 9,920.3 2,523.0 26,329.0 1965 13,742.8 9,951.5 2,680.9 26,375.2 1966 14,329.9 9,974.9 2,918.5 27,223.3 1967 15,187.1 10,184.9 3,208.3 28,580.3 1968 16,271.2 10,833.8 3,399.3 30,504.3 1969 16,375.4 11,667.1 3,529.6 31,635.1 1970 17,059.3 12,222.6 3,720.9 33,002.8 1971 17,463.0 12,512.4 2,842.7 33,818.1 1972 18,534.5 13,113.2 4,149.4 35,797.1 1973 19,464.8 13,613.6 4,168.1 37,246.5 1974 20,602.2 14,740.2 4,580.7 39,923.1 1975 21,908.4 16,091.0 4,336.8 42,336.2 1976 22,177.0 16,756.1 4,173.4 43,106.5 1977 22,972.5 17,009.0 4,125.2 44,106.7 1978 26,076.5 17,986.9 4,571.4 48,634.8 1979 27,524.7 18,898.2 4,338.7 50,761.6 1980 b/ 28,136.5 19,533.3 4,427.2 52,097.0 1981 b/ 29,075.6 20,275.6 4,391.8 53,743.0 a/ Excluding fishing, hunting and forestry. b/ PrelimInary Estimate. Source: Banco de la Republ ica,  - 45 - Table II I COLOMBIA: COMPOSITION OF PRODUCTION AND TRADE OF CROPS, 1981 (In percent) Share of Share In Share of Imports Value of Exports In In Estimated Crop Productiona/ Productlonb/ AvallabilityC/ 1. Annual Crops 35.3 Cereals 16.5 RIce 10.0 3.5 0.0 Barley 0.4 0.0 59.1 Maize 3.5 0.0 5.9 Sorghum 2.2 0.0 9.4 Wheat 0.3 0.0 89.0 Cotton & Ollseeds 5.4 Sesame 0.2 100.0 0.0 Cotton 4.5 49.5 11.8 Soybeans 0.7 0.0 15.2 Other 13.4 Beans 1.3 10.8 1.2 Potato 6.3 1.0 0.0 Cassava 5.8 0.0 0.0 2. Perennial Cropsd/ 34.0 Sugarcane 3.2 1.0 0.0 Banana 1.9 73.0 0.0 Tobacco 0.9 24.5 0.0 Flowers 2.8 95.0 0.0 Panela 4.3 0.0 0.0 Plantain 5.6 0.0 0.0 OllpaIm 1.5 0.0 0.0 Vegetable 6.1 0.0 0.0 FruIt 6.1 0.0 Cacao 1.7 0.0 0.0 3. Coffee 30.7 81.0 0.0 a/ Based on calculations for gross production at 1970 prices. b/ Quantity of exports divided by production. c/ Quantity of Imports divided by estimated avalabli Ity. d/ Except tobacco and vegetable. Source: SAC, Banco de la RepublIca, DNP and mission estimates.  Table IV COLOMBIA: COMMWITY EXPORTS, 1970-81 a/ (mlIllons of US Dollars) PrelImInary Est nmte 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Major Export: Green Coffee 467.0 400.0 430.0 598.0 622.0 672.0 967.2 1,497.9 1,979.0 2,005.0 2,361.0 1,421.0 MInor Exports: Agro-based Products 101.4 105.2 155.0 166.5 229.5 327.4 267.5 353.8 339.3 381.1 584.8 585.9 Cotton 34.6 29.7 51.2 38.1 48.6 76.1 59.4 164.0 72.5 52.0 0.0 109.0 Cattle B Beef 21.8 28.2 37.7 43.4 36.0 56.8 52.1 45.0 46.5 37.2 27.3 54.5 Sugar 14.0 15.7 28.4 30.2 68.6 95.1 24.1 2.2 19.5 49.6 160.9 76.4 Bananas 18.1 14.7 13.7 15.4 25.4 31.6 40.9 45.6 76.0 84.8 99.0 135.9 Tobacco 7.2 9.2 9.9 15.0 18.9 12.8 25.5 19.2 27.5 24.2 26.3 18.6 Flowers 1.0 I .8 3.1 8.4 16.0 19.3 21.6 32.6 53.4 79.2 93.0 110.0 Rice 0.0 0.0 0.7 3.4 0.5 22.9 21.4 19.9 4.6 8.8 15.8 31.5 Cheese - 0.2 1.4 3.3 0.4 1.2 2.8 6.8 16.1 17.1 20.6 22.6 Fish 4.7 5.7 8.9 9.3 11.5 11.6 19.7 18.5 23.2 28.2 31.9 27.4 Manufactured Products: 83.3 118.4 168.5 256.4 479.3 392.5 448.0 469.7 620.5 695.4 864.7 922.4 Food Products b/ 11.1 11.7 15.7 8.1 11.9 19.3 16.1 30.5 31.3 34.0 48.7 53.3 Footwear, Clothing I Textiles c/ 18.7 26.7 42.6 81.9 154.0 102.4 139.0 88.0 194.7 150.4 166.1 164.7 Leather & Hides 6.7 7.0 19.0 25.5 16.0 16.5 20.4 30.0 33.8 37.7 32.1 39.3 ChemIcals A Pharmaceutlcals 7.6 11.4 16.9 32.2 70.7 53.0 44.5 45.9 12.2 60.7 84.5 73.2 SasIc Metals I Products 4.9 6.9 10.9 20.9 28.0 21.5 23.6 32.7 36.4 65.9 47.8 60.4 0% Mechanical & E.lectrlcal Equlpment 3.7 5.3 7.3 13.1 23.6 23.1 29.4 43.9 41.1 52.1 62.3 63.4 Tlimber & Wood Products 5.4 5.6 8.7 22.0 30.6 8.0 13.6 14.7 7.5 15.1 13.3 11.6 Paper. Cartons 1 Rooks 3.6 4.4 10.0 11.0 14.2 16.4 25.1 28.3 72.2 53.0 71.0 89.4 Cement 3.3 3.2 5.7 6.9 9.8 11.9 23.3 14.9 21.9 30.7 35.7 29.7 Glass 4.2 3.9 4.2 4.8 6.6 7.3 10.0 10.0 9.7 14.3 18.0 14.6 Plastics 1.3 2.3 3.5 4.7 5.9 7.6 9.8 10.7 14.4 17.3 20.5 25.3 Transport Equipment 0.7 9.5 2.3 2.8 5.4 7.1 9.2 15.6 21.1 17.9 25.7 31.5 Fuel Ol d/ 12.1 20.5 21.7 22.5 102.6 98.3 84.0 104.5 124.2 146.3 239.0 266.0 Other Products: 83.9 66.4 112.5 156.4 86.1 33.5 62.5 121.8 63.9 218.9 134.5 10.0 Total Goods 735.6 690.0 866.0 1,177.3 1,416.9 l.465.2 1,745.2 2.443.2 3,002.7 3,300.4 3,945.0 2,939.3 a Balance of Payments Adjustment 52.4 62.0 113.0 85.7 77.1 281.8 509.8 283.8 267.3 280.6 456.0 426.7 Total Goods Adjusted 788.0 752.0 979.0 1,263.0 1,494.0 l.747.0 2,255.0 2,727.0 3,270.0 3,581.0 4,401.0 -3366.O Freight & Insurance 43.0 49.0 49.0 65.0 98.0 93.0 120.0 144.0 140.0 153.0 171.0 187.0 Other TransportatIon 52.0 58.0 55.0 69.0 80.0 82.0 142.0 146.0 165.0 182.0 182.0 206.0 Truvel 54.0 61.0 59.0 72.0 105.0 141.0 175.0 231.0 260.0 357.0 356.0 385.0 Other 63.0 54.0 65.0 79.0 81.0 102.0 113.0 195.0 204.0 385.0 238.0 100.0 Total Goods and NFS 1,000.0 974.0 1,207.0 1.548.0 1.858.0 2,165.0 2,805.0 35443.0 4,039.0 4,658.0 5,348.0 4,444.0 a/ Based on Customs dato. b/ ExcludIng sugar. c/ Excludlng cotton fiber. d/ ECOPETROL fIgures for 1976-81. a/ Adjusted to accoamodate ECOPITROL's hIgher figure for fuel oll. Source: DANE and Banco d, la Repebl Ice.  Table V OOLOMBIA: VALUE OF PRINCIPAL AGRICULTURAL IMPORTS, 1971-80 (m Il I ons of US Dol lars) Prel im inary 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 Crops 53.8 41.5 104.5 158.9 97.2 144.4 150.1 190.1 217.2 325.5 Wheat 30.1 28.5 33.9 79.1 54.1 65.1 26.7 50.7 52.6 128.8 Pulses 3.1 1.2 6.7 9.0 6.2 9.1 14.1 14.2 14.2 28.8 Apples and grapes 2.0 2.4 1.5 3.2 3.1 4.8 3.7 3.2 9.0 13.0 Barley 3.0 0.0 6.5 7.4 2.4 9.7 14.9 15.4 11.0 8.8 Oats 1.2 1.5 2.2 2.9 2.3 2.7 2.8 2.8 4.2 3.5 Ma ize 3.6 0.1 10.0 6.2 0.0 2.2 13.4 8.0 8.7 30.8 R Ice 0.0 0.0 0.0 0.0 0.0 0.0 0.9 5.0 3.6 0.6 Soybean and soybean oil 1.7 1.3 7.3 14.1 4.4 14.3 22.9 33.5 54.5 66.4 Cotlon oI 0.0 0.0 0.0 0.9 0.0 0.0 0.4 0.6 0.0 0.0 Cocoa 8.0 5.1 7.6 10.2 5.9 0.6 0.0 0.1 0.0 0.0 Other 1.1 1.4 28.8 25.9 18.8 32.9 50.3 56.6 59.4 44.8 L ivestock 0.7 1.6 2.2 2.6 19.3 29.7 48.0 42.0 40.5 73.0 C attl e 0.1 0.1 0.1 0.3 0.2 0.4 0.9 2.6 3.7 3.3 Pou I try and eggs 0.4 0.6 0.7 0.1 0.7 1.2 1.1 1.1 1.5 1.4 LIvesiock products 0.2 0.8 1.3 2.1 1.7 8.3 20.6 11.2 7.0 30.5 Other - 0.1 0.1 0.1 16.7 19.8 25.4 27.1 28.3 37.8 F Ish - - 10.4 18.1 13.2 24.6 30.4 41.1 63.3 72.2 Total 54.5 43.1 117.1 179.6 129.7 195.7 228.5 273.2 321.0 470.7 ==o== =Is=s =Iou== ====== ====== ====== ======S Source: MInsisfry of AgrIculture (OPSA).  Table VI COLOMBIA: IWPORTS BY PRINCIPAL PROOUCT GRCUPS, 1970-81 a/ (ml t I lons of US Dol[lars) Machinery & Vehicles & Fuels, Electrical Transportation Mineral Oils Chemicals & Paper Materials Rubber Equipment Equipment & Products Pharmaceuticals Iron & Steel Plastics & Products Products Foodstuffs Other Total 1970 231.2 136.8 8.7 76.6 78.6 22.5 35.9 14.0 31.0 200.9 836.2 1971 215.5 127.7 10.8 87.6 81.6 25.4 35.1 16.9 62.7 206.1 929.4 1972 256.0 117.3 5.4 92.4 64.6 21.0 37.8 17.0 46.7 200.8 859.0 1973 359.3 128.0 3.9 127.0 72.2 21.8 48.4 21.3 80.1 199.5 1,061.5 1974 306.7 191.6 3.7 210.8 139.6 45.1 67.9 35.1 143.5 453.2 1,597.2 G 1975 329.7 238.4 18.4 199.1 135.3 41.1 68.3 28.7 94.8 341.0 1,494.8 1976 406.4 251.4 41.7 200.6 122.9 48.8 66.6 40.5 146.2 383.0 1,708.1 1977 415.5 273.7 136.3 236.8 123.6 61.0 72.2 45.3 156.6 447.3 2,028.3 1978 618.4 380.7 205.1 300.6 180.9 84.0 96.3 55.3 180.6 734.4 2.836.3 1979 719.4 455.4 324.3 291.4 251.6 101.2 103.4 69.4 213.6 703.5 3,233.2 1980 b/ 1,099.1 619.3 566.5 396.3 316.1 145.3 13B.2 73.1 338.1 970.6 4,662.6 1981 b/ 1,127.2 557.4 677.6 388.9 312.0 114.7 136.4 119.6 272.0 1,003.9 4,709.7 a/ Based on Customs data. b/ PrelImInary. Source: DANE.  - 49 - Table VII COLOMBIA: YIELD COMPARISONS FOR MAJOR CROPS, 1981 (kg/ha) Interna- South North tional Colombia AmerIca America Average I. Temporary Crops Cereals 2,469 1,949 3,860 2,248 Rice 4,354 1,782 5,462 2,855 Wheat 1,597 1,337 2,235 1,914 Barley 1,567 1,214 2,617 1,987 Maize 1,399 2,212 6,863 3,370 Sorghum 2,300 3,192 4,025 1,507 Roots & Other 11,593 11,402 28,062 11,660 Potato 13,169 11,116 29,166 14,387 Cassava 10,386 11,905 - 9,055 Beans, dry 757 520 1,611 567 Oilseeds Soybeans 2,027 1,795 2,049 1,751 Sesame 530 580 724 311 Seed Cotton 1,645 1,035 1,627 1,369 2. Permanent Crops Coffee 752 721 - 574 Cocoa 580 538 - 358 Sugarcane 86,333 57,230 88,802 56,102 Tobacco 1,653 1,277 2,383 1,313 Source: FAO, Production Yearbook, 1981.  Tdale VI II OOLt*IA: PICULTURL TER4S CF TRAtE (TOT), 1965-81 (1970 - 100) Natbnal Aooun sPr ce Defl abrs eV National Accounis Price Def Iaws a/ ExcludlngCoffee Wolesale Price Indsxb/ Agr ku I 1re lbN-aLr lcu Ilure TOT Ag- u I 1ire fbn-ag- icu I ikre TOT Ag- ku I ire n-agr- ku I ire TOT 1965 64.3 60.6 106.1 71.8 60.6 118.5 68.3 61 .6 110.9 1966 73.4 69.9 105.0 83.0 69.9 118.7 79.6 73.1 108.9 1967 78.2 76.2 102.6 87.4 76.2 114.7 53.8 79.7 105.1 1968 84.7 83.7 101.2 93.3 83.7 111.5 89.4 84.2 106.2 1969 91.7 9D.4 101.4 104.9 9D.4 116.0 94.2 91.3 103.2 1970 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1971 111.1 110.2 100.8 113.5 110.2 103.0 116.0 109.5 105.9 1972 130.4 123.5 105.6 132.6 123.5 107.4 136.4 126.0 108.3 1973 171.0 147.2 116.2 174A 147.2 118.5 182.0 155.2 117.3 1974 212.0 189.8 111.7 218.2 189.8 115.0 247.2 215.0 115.0 1975 257.0 228.8 112.2 264.0 228.8 115.6 333.4 262.9 126.8 1976 330.4 279.3 118.3 315.9 279.3 113.1 413.3 324.2 127.5 1977 461.4 347.0 133.0 442.8 347.0 127.6 581 .1 396 145.8 1978 501.9 418.4 120.0 491.9 418.4 117.6 702.6 460.0 152.7 1979 584.4 530.7 110.1 589.3 530.7 111.0 894.5 597.7 149.7 1980 c/ 719.3 682.6 105.4 729.6 682.6 106.9 1,101 A 761A.4 144.7 1981 d/ 861.0 850.7 101.2 n.e. 850.7 n.a. 1,357.2 955.0 142.1 eV At market pr kes. No Nfn-g-iculiure aiholesale Index Includes price varlatbs In procesed foods aet-r 1970. c/ Prel km inry. '/ Esthaie. Source: Banco de Ia Republ Ice.  - 51 - Table IX COLOMBIA: TOTAL AGRICULTURAL LOANS OUTSTANDING, 1970-80a/ (In millions of Col.S) Implicit Pr ice Deflator for Loans Rate Loans Agricultural Outstanding of Outstanding GDP (1970 Col.S) Increase 1970 9,352 100.0 9,352 1971 10,850 111.1 9,766 4.4 1972 12,708 130.4 9,745 (0.2) 1973 15,302 171.0 8,949 (8.2) 1974 20,344 212.0 9,596 7.2 1975 23,720 257.0 9,230 (3.8) 1976 28,465 330.4 8,615 (6.7) 1977 40,385 461.4 8,753 1.6 1978 49,092 501.9 9,781 11.7 1979 60,769 585.5 10,379 6.1 1980 73,847 712.5 10,364 (0.1) a/ Year-end. Source: Revtsta Nacional de Agricultura, Bogota, November, 1981.  Table X COLOMBIA: SUPPLY AND DISTRIBUTION OF EXPORT GRADE GREEN COFFEE, 1958-59 TO 1981-82 (thousands of 60-kilogram bags) Coffee Exports year Stocks Domestic Normal Other Stocks (Oct./Sept.) Carry-In Production a/ Consumption Markets Markets Total Carry-Out b/ 1958-59 11 7,442 908 6,372 59 6,431 114 1959-60 114 7,648 1,197 5,597 74 5,671 894 1960-61 894 7,500 1,270 5,990 53 6,043 1,081 1961-62 1,081 8,035 1 ,526 5,536 58 5,594 1,996 1962-63 1,996 7,500 1,416 5,952 104 6,056 2,024 1963-64 2,024 7,800 1,375 6,228 82 6,310 2,139 1964-65 2,139 8,547 1,354 5,612 131 5,743 3,589 1965-66 3,589 8,224 1,202 5,670 195 5,865 4,746 1966-67 4,746 7,507 1,250 5,421 213 5,634 5,369 1967-68 5,369 7,995 1,270 6,344 251 6,595 5,499 1968-69 5,499 7,375 1,290 6,204 330 6,534 5,050 1969-70 5,050 8,450 1,043 6,467 407 6,874 5,583 1970-71 5,583 7,683 1,300 6,008 322 6,331 5,635 1971-72 5,635 5,723 1,300 6,349 137 6,487 3,571 1972-73 3,571 8,818 1,300 6,067 188 6,255 4,834 1973-74 4,834 7,214 1,400 7,015 393 7,408 3,240 1974-75 3,240 8,102 1,400 7,196 346 7,542 2,400 1975-76 2,400 7,835 1,400 6,625 630 7,255 1 ,580 1976-77 1,580 8,879 1,500 5,292 559 5,851 3,108 1977-78 3,108 10,765 1,605 7,558 73 7,631 4,637 1978-79 4,637 11,568 1,638 10,718 - 10,718 3,849 1979-80 3,849 12,548 1,730 11,540 555 12,095 2,572 1980-81 c/ 2,572 13,037 1,480 9,030 - 9,030 5,099 1981-82 5,099 13,728 1,480 9,120 - 9,120 8,227 a/ Registered production. Series deduced from data on stocks, consumption and exports. b/ Stocks Include private holdings. c/ prel imInary. Source, FEDERACAFE  Table XI OOLOMBIA: IEW YORK AND DOMESTIC COFFEE PRICES, REAL AND NOMICNL, 1970-81 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 New York SpotPrice (US cents/lb) Coloob ian MAMs 56.4 49.3 56.7 72.7 77.9 81.7 157.7 240.2 185.2 183.4 178.8 140.4 Guaitnala Prlme Washed 52.0 45.0 50.3 62.6 65.9 65.4 142.7 234.7 162.8 173.5 154.2 128.1 ICO Ifndica-br Prlme 55.8 44.8 52.5 69.2 73.3 83.8 149.5 308.0 165.3 178.5 208.9 186.4 100 Robujsta 41.4 42.4 45.2 50.2 58.7 61.1 127.1 223.8 147.5 165.5 147.2 102.9 Index of Iniernational Inflation (1970=100) 100.0 108.2 119.8 144.1 179.5 207.0 210.7 227.3 263.4 301.8 337.2 322.1 New York Spot Spr Ice In Cons tan t 1970 Pr ioes (US cents/ lb) Colornbian MPMs 56.4 45.6 47.3 50.5 43.4 39.5 74.8 105.7 70.3 183.4 51.3 45.0 Gua-effmal a PrIme Wi-,ed 52.0 41.6 42.0 43.4 36.7 31 . 67.7 103.3 61 .8 173.5 44.2 39.8 IOD lndicat-r Prime 55.8 41.4 43.8 48.0 40.8 40.5 70.9 135.5 62.8 178.5 59.9 48.8 ICO Robusta 41.4 39.2 37.7 34.8 32.7 29.5 60.3 98.5 56.0 165.5 42.2 31.9 Manizales Cffee in lhe Inierior (peso/carga) 130.4 124.5 150.0 193.7 220.7 272.8 553.3 717.9 730.0 727.0 866.3 945.3 Colomrbian hiolesale Price Index (1970=100) 100.0 111.5 131.9 168.7 229.5 287.8 353.8 448.2 527.2 673.9 836.9 1,008.2 Inierior Coffee Price in Constant 1970 Prices (peso) 130.4 111.7 113.7 114.8 96.2 94.8 156.4 160.2 138.5 107.9 103.5 93.8 a/ 1 carga = 12.5 k ilograns. Source: Banco de I a RqEubl ica Econcmic Projectbns and AnalysIs Department (IBRD)  Table Xll COLOMBIA: BALANCE OF PAYMENTS, EXPORT PROJECTIONS, 1980-90 In m ll I Ions of US Dol lI ars) Prel I mInary Proj ec ted 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Cons tan t (1 970 USS M II1I Ions Coffee 576.2 470.1 443.0 452.0 475.1 481.3 487.5 493.9 500.3 506.3 513.4 Cotton 34.6 40.7 17.9 19.1 20.4 21.9 23.4 25.1 26.8 28.7 30.7 Sugar 26.6 I8.7 19.6 20.7 21.7 22.8 24.0 25.3 26.6 28.0 29.5 Bananas 47 .9 60.4 61.6 62.9 64.1 65.4 66.7 68.1 69.4 70.8 72.2 Cattle and Beef 6.2 12.5 12.9 13.2 13.7 14.1 14.8 15.5 16.3 17.1 17.9 Petroleum Der IvatIves 17.8 19.5 19.6 21.6 26.0 27.2 26.9 35.6 47.1 62.4 82.7 NIckel - - 16.8 48.6 60.5 64.2 65.3 61.9 63.5 64.2 65.2 Coal 1.7 3.1 7.3 14.0 25.8 32.4 146.8 196.6 261.9 328.8 333.4 4 lMajor Manufactured Good 212.3 203.9 207.2 216.8 226.6 236.3 248.8 261.8 275.3 290.0 305.7 All Other Goods 278.7 192.7 150.8 157.8 165.2 173.1 181.3 190.0 199.2 209.1 218.8 Total Goods 1,202.0 1,021.6 956.7 1,026.7 1,099.1 1,138.7 1,285.5 1,373.8 1,486.4 1,605.4 1,669.5 Non-f actor Serv Ices 280.4 334.3 314.3 316.0 324.0 326.0 340.0 354.0 370.0 390.0 406.0 Total Exports 1,482.4 1,355.9 1,270.7 1,342.7 1,423.1 1,464.7 1,625.5 1 .727.8 1,856.4 1,995.4 2,075.5 Pr Ice IndIces (1970 5 100) Coffee 392.2 325.6 351.0 363.7 376.4 389.1 414.6 440.0 468.0 495.9 526.5 Cotton 240.5 268.5 270.1 313.3 343.4 376.3 400.0 425.2 451.9 480.3 510.6 Sugar 605.0 409.5 296.0 328.2 411.9 517.0 547.9 580.7 615.6 652.5 691.5 Bananas 225.7 224.3 232.8 241.3 250.5 259.9 271.3 283.3 295.9 308.9 322.5 Cattle and Beef 442.4 336.8 356.4 376.0 404.9 436.0 461.4 488.4 516.8 546.9 578.8 Petroleum DerIvatIves 1,340.0 1,362.0 1,528.0 1,684.0 1,851.0 2,031.0 2,230.0 2,449.0 2,689.0 2,953.0 3,152.0 Nlckel - - 198.5 217.0 239.0 254.0 258.0 262.0 265.0 268.0 276.0 Coal 379.4 419.9 437.4 458.6 486.6 516.3 476.1 511.7 550.5 592.4 638.1 Major Manufactured Goods 272.0 299.5 318.4 330.3 341.9 353.3 369.6 385.8 403.8 421.3 439.9 All Other Goods 337.3 299.0 424.3 460.1 493.3 527.6 547.1 585.8 618.4 651.8 688.0 Total Goods 366.0 328.8 367.4 384.6 409.8 433.4 457.0 461.5 547.4 603.7 668.7 Non-factor Serv Ices 337.7 322.4 347.2 375.5 403.4 431.7 457.5 484.7 514.2 544.9 577.6 Total Exports 361.0 327.2 362.4 382.5 408.4 433.0 457.1 496.3 540.8 592.2 650.8 Current US$ MIII lons Coffee 2,260.0 1,530.6 1,554.9 1,643.9 1,788.3 1,872.7 2,021.2 2,173.4 2,341.4 2,510.7 2,703.0 Cotton 83.0 109.3 48.4 59.8 70.0 82.4 93.6 106.7 121.1 137.8 156.7 Sugar 161.0 76.6 58.0 67.9 89.4 117.9 131.5 146.9 163.7 182.7 204.0 Bananas 108.0 135.5 143.4 151.8 160.6 170.0 181.0 192.9 205.3 218.7 232.8 Cbttle and Beef 27.0 42.1 45.9 49.9 55.3 61.5 68.1 75.9 84.1 93.6 103.8 Petroleum DerIvatIves 239.0 265.6 299.5 363.7 481.3 552.4 599.9 872.2 1,268.0 1,843.6 2,605.5 Nickel - - 33.3 105.5 144.6 163.1 168.5 162.2 168.3 172.1 179.9 Coal 6.0 13.0 31.9 64.2 125.5 167.3 698.9 1,006.0 1,441.7 1,947.9 2,127.3 Major Manufactured Goods 577.0 610.7 659.8 716.0 774.8 834.8 919.6 1,010.0 1,111.8 1,221.7 1,344.9 All Other Goods 940.0 583.0 639.9 726.0 814.9 913.3 991.9 1,113.1 1,231.8 1,363.0 1,505.3 Total Goods 4,401.0 3,366.0 3,515.0 3,948.7 4,504.7 4,935.2 5,874.2 6,859.1 8,137.2 9,691.8 11,163.2 Non-factor ServIces 947.0 1,077.8 1,090.2 1,186.6 1,307.0 1,407.3 1,555.5 1,715.8 1,902.5 2,125.1 2,345.0 Total Exports 5,348.0 4,444.0 4,605.2 5,135.3 5,811.7 6,342.6 7,429.7 8,575.0 10,039.7 11,817.0 13,508.3 Source: DANE, Banco de la Repubt Ica, Bank staff estImates and projections  - !'D-10190 78' 76- 7'4e - .2TT A T .1 A N T 0 coc E A IV X TH AmEIA t gMAGDALENA f Vleue , >.~~S +Jr5> * PS > \- :i.<) Mj(~~~~ > , < NORTE \, ~~V E N E Z U E L A . 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